Mr. Duisenberg’s opening statement at the meeting of the Governing Council of the European Central Bank Introductory statement by the President of the European Central Bank, Dr. W. F. Duisenberg, at the press conference held in Frankfurt on 11/9/98. Ladies and gentlemen, the Vice-President and I are here today to report not only on the outcome of today’s meeting of the Governing Council of the European Central Bank, but also - as you are already aware - on the outcome of the meetings of the Governing Council and the General Council that took place on 1 September 1998. It was in view of the short time span between the two sets of meetings that we decided that it would be more efficient to hold only one press conference to provide you with a summary of our deliberations. It is my intention to continue this practice for the remaining meetings of this year. In this regard, the Governing Council will meet, not only as scheduled on 13 October, 3 November and 1 December 1998, but there will also be an additional meeting on Tuesday, 22 December 1998. By this time, the bulk of nearly five years of preparatory work - including the “EMI years” - will be behind us and I envisage that the Governing Council’s final meeting before the start of Stage Three of Economic and Monetary Union (EMU) will be devoted to fine-tuning its last-minute preparations. You will recall that monetary policy decisions remain a national competence until 31 December 1998.
To enhance risk management of banks, the HKMA has just issued a set of guidelines to banks, requiring them to tighten the underwriting criteria for mortgages where borrowers already have one or more properties under mortgage. 4. Under these new measures, when handling new applications for mortgage loans for residential, industrial or commercial properties from borrowers who already have one or more properties under mortgage, banks must adopt the following three requirements: First: for mortgage loans assessed based on the debt servicing ability of a mortgage applicant, the maximum debt servicing ratio (DSR) shall be lowered from the current 50% by 10 percentage points to 40%. Accordingly, the maximum stressed DSR shall also be lowered correspondingly from the current 60% by 10 percentage points to 50%. However, an applicant with just one property with outstanding mortgage loan will not be affected by this new measure if the new mortgage loan is for self-occupied purpose, or for the replacement of an existing property. Second: for mortgage loans assessed based on the net worth of a mortgage applicant, the maximum loan-to-value (LTV) ratio shall be lowered from the current 40% by 10 percentage points to 30%. Third: for mortgage applicants whose principal income is derived from outside Hong Kong, the applicable maximum LTV ratio shall be lowered by 20 percentage points, instead of the current 10 percentage points. 5. Based on the experience in Hong Kong, borrowers with multiple outstanding mortgage loans have higher level of indebtedness and leverage.