DBS Group Holdings is shifting focus away from mortgages in Hong Kong because of falling loan profitability and limited scope for home-price gains, the head of the bank’s operations in the city said.

“We don’t want to grow very fast in retail mortgages because the return is not there,” Sebastian Paredes, chief executive officer of the Hong Kong unit of Southeast Asia’s largest bank, said at a briefing today. “We believe there are other areas of higher growth and higher returns that merit our resource allocation.”

Hong Kong’s government this year intensified efforts to curb gains in property prices that have jumped about 50% since early 2009. Hang Seng Bank, Standard Chartered Plc and Wing Lung Bank are among lenders in the city that have raised mortgage rates in the past week.

 

DBS raised mortgage rates in Hong Kong in July by 5 basis points, to 0.75%age point above the Hong Kong Interbank Offered Rate, or Hibor. A basis point is 0.01 percentage point. Paredes said margins on home loans have been narrowing, reducing the allure of the business.

 

“It is true that this portfolio gives you fewer losses, but nonetheless it gives you a lower margin now,” he said. DBS is focusing on loans to small companies, an area where it sees “a great opportunity for growth,” Paredes said.

 

Singapore-based DBS plans to expand its workforce by 20% next year from about 3,600 people now, according to Paredes. The company will at least double staff in China over the next three years from almost 1,000 people currently, he said.