With the launch of an all-important credit bureau earlier this month, banks in Hong Kong are gearing up to fight for credit-worthy borrowers to grow their flagging consumer lending business.

The long-awaited bureau - which puts Hong Kong in line with many other Asian financial centres - allows local lenders to share positive data about their individual clients and hence help them identify good borrowers. Negative data has been available for some time.

The bureau, however, is expected to spark a pricing war for quality clients, although a full-blown fight is unlikely for another few years as banks are currently only allowed to use the data for new customers, experts said.

"In the coming one to two years, the competition will not be keen," Derek Lai, director at Hong Kong consumer finance firm Aeon Credit Service (Asia) Co Ltd, told Reuters.

When banks do access data on all borrowers, price competition will intensify and encompass the full range of consumer products, such as mortgages, personal loans and credit cards, Lai said.

"There is going to be some carnage because everyone is trying to get back into the market," said Paul Sheehan, an analyst at ING Financial Markets.

Keith Irving, analyst at Merrill Lynch, added: "Once the data is sophisticated enough, once it can be active for existing customers, then it could well trigger segmented pricing."

Hong Kong banks have been wary about the consumer lending business because of record high unemployment which has fuelled personal bankruptcies and led to mounting bad debts.

Due to higher charges for mortgages and unsecured personal lending, bad debt charges at HSBC's Hong Kong unit soared to HK$2.41 billion (US$309 million) in the first half from HK$1.28 billion a year earlier.

Reuters

(HK Edition 08/09/2003 page7)