Mortgage uptick offers relief to Hong Kong banks

Some lenders offer aggressive fixed-rate products to attract clients.

Cheaper funding is beginning to lift credit appetite in Hong Kong, particularly for residential mortgages, offering a lifeline for banks facing years of muted loan demand and squeezed interest margins.

Rising borrowing signals households may be more willing to take on debt, whilst lenders can grow loan books despite low deposit rates, helping offset pressure on net interest income.

Loans and advances climbed 2.3% in 2025 from a year earlier, with mortgage approvals rising 22% to $31.2b, according to Hong Kong Monetary Authority (HKMA) data.

The uptick followed the central bank’s December base rate cut after the Federal Reserve lowered borrowing costs, highlighting the city’s sensitivity to US monetary policy under the Hong Kong dollar peg.

"A reduction in rates could also drive more demand for lending products,” Benjamin Quinlan, CEO and managing partner at Quinlan & Associates Ltd., told Hong Kong Business in a Zoom interview.

He added that banks might see higher volumes even if net interest margins remain tight.

With deposit rates near zero, traditional savings no longer generate meaningful returns, prompting lenders to expand fee-based services.

Mortgage competition is intensifying, with some lenders offering aggressive fixed-rate products to attract clients, betting that customer acquisition and long-term relationships will compensate for narrower spreads.

At the same time, banks are trimming costs through digital services, branch consolidation and automation, aiming to improve efficiency and customer experience.

“Operational efficiency and digital innovation will continue to support profitability,” Quinlan said in the Zoom interview noting that margin pressure does not automatically mean weaker earnings.

Alicia García-Herrero, chief economist for the Asia-Pacific at Natixis SA, said cheaper funding is part of a broader 2024–2025 easing cycle rather than signaling a prolonged low-rate era.

“Further cuts in 2026 appear limited, though uncertainty remains,” she said via Zoom.

Still, lower borrowing costs could boost mortgages, loans to small businesses, and trade finance, supporting economic activity, she pointed out.

“With deposit rates near zero, banks will focus increasingly on fee-based revenue to offset low-yield savings,” García-Herrero said.