Banks Rethink Evergrande Mortgage Halt After HKMA Queries
(Bloomberg) -- At least two of Hong Kong’s biggest lenders are reconsidering halts on mortgages for China Evergrande Group’s unfinished properties, after their decisions were questioned by the city’s de facto central bank, according to people familiar with the matter.
The potential turnabout by HSBC Holdings Plc and Bank of China Ltd.’s Hong Kong unit comes just days after the banks suspended the mortgages amid mounting doubts about Evergrande’s financial health.
The Hong Kong Monetary Authority asked banks to explain the situation on Thursday, questioning whether staff and homebuyers had been told that new loans for two of Evergrande’s uncompleted residential projects were being halted, people familiar with the matter said, asking not to be identified discussing private information. One bank official interpreted the HKMA’s questions as a subtle request to rethink the halts.
The episode may stoke speculation that regulators in China and Hong Kong will take steps to prevent a rapid loss of faith in Evergrande, given the potential systemic risk a collapse would pose to the Chinese financial system.
Worries about a cash crunch at Evergrande fueled a 26% slide in the company’s stock this week, the steepest five-day tumble since March 2020. The developer’s offshore bonds due 2025 are trading at about 53 cents on the dollar, implying a high likelihood of default.
At least four of Hong Kong’s top lenders -- including HSBC, Bank of China’s local unit, Hang Seng Bank and Bank of East Asia -- decided on the mortgage halts earlier this week after re-evaluating the risks of such loans, according to people familiar with the matter. It’s unclear whether Hang Seng Bank and Bank of East Asia have joined their peers in rethinking the halts.
Representatives for HSBC, Bank of China (Hong Kong) and Bank of East Asia didn’t comment when asked Thursday about whether they had reversed the suspensions. The HKMA said it communicates with banks on various issues but as a matter of policy doesn’t comment on specifics. Evergrande didn’t immediately respond to requests for comment.
Pressure has been mounting on Evergrande founder Hui Ka Yan to reassure markets that his company can make good on its $301 billion pile of liabilities. Analysts have said the selloff may continue unless Hui accelerates asset sales, brings in new strategic investors or secures a bailout from Chinese authorities.
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Following reports of the mortgage suspensions earlier this week, Evergrande said it had good relationships with many lenders in Hong Kong and its local operation wouldn’t be impacted. The company declined to comment on any action by individual banks.
Evergrande said it’s sticking with plans for its Hong Kong projects and is confident on delivering Emerald Bay II in August as scheduled. The Vertex in Cheung Sha Wan area is slated to finish by the end of October.
HSBC, Bank of China’s Hong Kong unit and Hang Seng are the biggest mortgage lenders for unfinished residential projects in Hong Kong, with HSBC providing 25% of the loans in the market in June, according to mReferral Corporation (HK) Ltd., a mortgage referral company.
The HKMA’s queries on Evergrande add to signs that authorities across China are paying more attention to the developer’s plight. A government official in the northeastern city of Shenyang this week urged state-owned enterprises to raise their stakes in local lender Shengjing Bank Co., one of Evergrande’s most valuable financial assets.
Officials from China’s top financial regulator told Hui in a private meeting at the end of June that he should solve his company’s debt problems as quickly as possible, emphasizing the need to avoid major economic shocks, people familiar with the matter said earlier this month. Hui told the officials he’s been speaking with local governments as he looks for a solution, one of the people said.
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