Hang Seng Bank, DBS to be hit the hardest by a floor on mortgage risk weighting

Check out why they are in more danger than their peers.

Barclays believes a potential rise in mortgage rates will further place downward pressure on transaction volumes and property prices.

Here's more from Barclays:

We find that Hang Seng Bank in Hong Kong is most negatively affected by a floor on mortgage risk weighting since its current risk weighting is low at 5%.

If the average mortgage risk weight were raised to 15%, its longer-term core Tier 1 would fall by 34bps to ~9.7% on a fully loaded Basel III basis, according to our calculations.

Its core Tier 1 ratio is already under pressure due to the gradual implementation of Basel III and eventual requirement to deduct its stake in Industrial Bank fully against core Tier 1.

While BOCHK also has a low average mortgage risk weighting, its core Tier 1 ratio is the highest among the Hong Kong and Singapore banks at 13.9% in FY13E.

If a floor on mortgage risk weight is eventually imposed in Singapore, DBS among the Singapore banks, looks likely to be relatively more affected than OCBC and UOB due to its low mortgage risk weighting of 6%.

Despite this, its core Tier 1 ratio remains adequate at 11.9% for FY13E, in our view.

For HSBC and STAN, Hong Kong and Singapore mortgages represent a smaller part of their group loans and would likely only see a shaving of 2-6bps off their core Tier 1 CARs.