Photo/Illutration Pro-democracy protesters gather outside the campus of the Hong Kong Baptist University in Hong Kong on Nov. 13. (AP Photo)

HONG KONG--Even as Hong Kong has reduced down-payment requirements to help young professionals and families to buy homes, banks are beefing up mortgage application standards to ensure that a recession does not saddle them with bad loans, bankers and mortgage brokers said.

Last month, Hong Kong Chief Executive Carrie Lam, struggling to restore confidence in her administration after five months of civil unrest, approved rules allowing first-time homebuyers to borrow as much as 90 percent of a HK$8 million ($1 million or 108 million yen) home's cost.

Earlier, such a high ratio was only permitted on properties worth half as much. The move increased sales of used homes.

But as the protests take a heavy toll on the special administrative region's economy, banks fear a deepening recession, unemployment and bankruptcies, which could make it hard for borrowers to pay them back, two bankers said.

Historically, mortgage delinquency is rare in Hong Kong, with a rate of about 0.02 percent.

HSBC, one of the top mortgage lenders in Hong Kong, recently issued a guideline that buyers cannot have a mortgage payment that exceeds 65 percent of their monthly income, must hold a full-time job and own no other property, said two industry sources.

Lenders including HSBC, Standard Chartered and Bank of China Hong Kong also plan to increase interest rates for mortgages and reduce cash rebates to borrowers in the months ahead, two bankers said.

The cash rebate--essentially a discount--has come down to as low as 0.5 percent now, compared with an average of 2 percent earlier this year. Some banks are planning to phase it out completely, they said.

"We have to use all the tools ... to protect our profitability and asset quality in this environment. You will see more measures in the next few months," said a Hong Kong-based banker with a European bank.

All of the bankers, industry sources and mortgage brokers declined to be named as they were not allowed to speak to the media.

HSBC said in a statement that it had continued to accept new mortgage applications "as usual" since the announcement of the new easing initiatives, and applications are considered on a case-by-case basis.

Standard Chartered said it would continue its "prudent approach to risk management and returns" and would closely monitor the market situation to review its strategy. Bank of China Hong Kong did not respond to a request for comment.

Some banks in Hong Kong have raised interest rates for new mortgages twice since August by a total of 25 basis points, even as they cut their best lending rates recently for the first time since the global financial crisis.

A month after Lam's announcement, property agents said most buyers of small to medium-sized flats are borrowing more of the value of the home, while their financial power appears to be weaker than previous customers'.

"We got more enquiries from clients who were not clear about their repayment capability," said Cookie Wong, a managing director of Ricacorp Mortgage Agency. "Some of their income only reaches the bottom line of the requirements, unlike before, when those buying the HK$10 million flats were much more cash sufficient."

Hong Kong's home prices fell 4.1 percent from June to September, but are still up 5.9 percent this year.

"The government measure is like giving a credit card to the primary school students, who shouldn't be buying homes. When they buy at this expensive level, they'll be trapped once prices fall," said a representative of a property developer, who declined to be named as he was not authorized to speak to the media.

Some analysts, however, say that as long as the banks keep stringent borrowing standards, there will be little systemic risk, and borrowing costs are unlikely to rise sharply in the near term.

"We do not expect the banking sector to materially relax its underwriting standards. We consider Hong Kong's banking industry risk to be the lowest among its peers," rating agency S&P said in a report on Oct. 29.