HSBC, a leading foreign bank operating in Sri Lanka has stopped offering home loans as it can no longer offer long term fixed interest rates because deposits to match these assets are hard to come by. The bank has entered into an agreement with state-owned National Savings Bank (NSB) so its high net-worth customers may still obtain a home loan.

Chairman NSB, S. R. Attygalle and Senior Deputy General Manager NSB, Dhammika Perera, told the Island Financial Review that HSBC had entered into an agreement with NSB where high net-worth customers of HSBC would now be offered NSB’s home loan product.

HSBC is still servicing existing home loans but have stopped issuing new home loans as they cannot mobilise enough long term funding and offer home loans with a long term fixed interest rate, unlike their local competitors.

HSBC’s home loan came with a floating rate, which increased significantly over the past few years in line with high interest rates in the market on account of Central Bank’s tight monetary policy stance to counter credit expansion to bring down high inflation.

Officials of both HSBC and NSB, not wanting to be quoted, said high interest rates made it difficult for many HSBC home loan customers to meet monthly instalments.

"Our customers have to meet considerable interest rate risks because of the floating interest rate structure of the home loan. We cannot offer fixed interest rates because we cannot mobilise enough long term deposits to match these loans.

"Many of our competitors, especially state-owned banks, could mobilise long term deposits at fixed rates and therefore they could offer home loans at fixed rates which made our product uncompetitive. So for these reasons, we have decided to exit the home loan market for a while," an official of HSBC said.

Under the agreement between the two banks, high net-worth customers of HSBC can apply for NSB home loans, and HSBC would deal with NSB on behalf of their customers to expedite the paper work and ensure high service levels are maintained.

With lending rates coming down since the Central Bank began to gradually loosen its monetary policy stance, a senior official of NSB said its home loan business was picking up, but nothing much was coming in from HSBC, thus making the alliance less beneficial to NSB.

"There has not been much progress as far as the agreement from HSBC is concerned and there is no business value in it," the NSB official said.

An official of HSBC responding to this statement said it only made sense that NSB would like to have more home loans coming its way from HSBC.

"Despite rates coming down we are not seeing an improvement in demand for home loans at the moment," he said.