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Hong Kong: Not-so-hot property

The bad times are far from over for Hong Kong. The financial crisis that has engulfed Asia is continuing to put enormous pressure on the once-vibrant local banking sector. Profits are down and bad and doubtful loans have soared. But in spite of the deteriorating operating environment, bankers are scrambling to maximize existing sources of income and to identify new ones.

Property loans traditionally account for the largest proportion of the local banks' portfolio. The Hong Kong Monetary Authority (HKMA), the territory's quasi-central bank, estimates average exposure to the sector at 40% of total domestic loans - a limit which, until July, it had maintained as the official recommended ceiling on bank lending. The authorities now feel that an across-the-board guideline has served its purpose. Lifting the guideline, HKMA deputy chief executive David Carse said: "The focus should be on internal risk management by institutions themselves and on the market discipline which can be exerted through public disclosure."

Amid tumbling property prices and a high-interest-rate environment, banks needed no prodding to be prudent. Chairman and chief executive of the Bank of East Asia David Li says: "We are reassessing our clients. We have asked some of them to bring in more collateral as security."

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