Information Paper for
Provisional Legislative Council,
Panel on Public Service
Interest Rates on Government Loans for Civil Servants
Introduction
Government loans to assist civil servants to achieve home ownership or for officers on terminal or pre-retirement leave are secured against the officers commuted pension gratuity or leave salary/gratuity and are interest bearing. The loans comprise downpayment loans under the Home Purchase Scheme and Home Financing Scheme, loans under the Housing Loan Scheme and loans under CSR 633. This paper sets out the mechanism for fixing the interest rates on these loans.
Mechanism
2. The interest rates charged on Government loans to civil servants are based on the principle of "no gain no loss" to the Government.
3. The present mechanism for fixing the interest rates was formulated by an interdepartmental working group comprising representatives of the Finance Bureau, the Financial Services Bureau, the Treasury and the Civil Service Bureau. It was introduced in June 1995. Under the mechanism, the mean of the monthly average of the one-year and two-year yields of the Hong Kong Monetary Exchange Fund Bills/Notes is used as the interest rate for the Government loans.
4. Details of the yields are published in the "Monthly Statistical Bulletin" produced by the Hong Kong Monetary Authority. The Treasury reviews the interest rate in the middle of each month and adjusts the rate if the updated mean for any month indicates a difference of 1% or more from the prevailing rate, or if the prevailing rate has remained stagnant for six months. If there is a change in interest rate, officers may opt either to alter the amount of their monthly repayment and leave the repayment period unchanged or to alter the repayment period and leave the amount of their monthly repayment unchanged.
Review
5. Since the introduction of the above mechanism the interest rates on Government loans have generally remained stable, at about 6% per annum or some 3% below the bank prime rate. (Details of the interest rates charged in the past two years are shown in the Annex.) However, the interest rate has increased significantly as a result of the turmoil in Asian money markets in late 1997. It rose from 6.075% per annum in November to 7.955% in December 1997 and then again to 9.475% in January 1998, narrowing the gap with the bank prime rate from about 3% to less than 1%. The increases have caused grave concern to affected staff and led to widespread demands for redress from both unions and individuals.
6. In view of these developments, we have reconvened the interdepartmental working group to review the existing mechanism. Government is now actively considering the various suggestions made by the working group.
Conclusion
7. Under the principle of "no gain no loss" to the Government, we aim to set an interest rate on Government loans which is reasonably below the mortgage interest rate available to civil servants in market. We are considering the best way to achieve this.
Civil Service Bureau
February 1998
Annex
Interest Rate on Government Loans for Civil Servants
|
Period
|
Govt. Interest Rate
(% per annum)
|
Bank Prime Rate
(% per annum)
|
Difference |
|
Jun 95 - Nov 95
|
6.285
|
9
|
-2.715 |
|
Dec 95
|
5.765
|
9
|
-3.235 |
|
Jan 96
|
5.765
|
8.75
|
-2.985 |
|
Feb 96 - May 96
|
5.765
|
8.5
|
-2.735 |
|
Jun 96 - Nov 96
|
5.8
|
8.5
|
-2.7 |
|
Dec 96 - Mar 97
|
5.685
|
8.5
|
-2.815 |
|
April 97 - May 97
|
5.685
|
8.75
|
-3.065 |
|
Jun 97 - Oct 97
|
6.075
|
8.75
|
-2.675 |
|
Nov 97
|
6.075
|
9.5
|
-3.425 |
|
Dec 97
|
7.955
|
9.5
|
-1.545 |
|
Jan 98
|
9.475
|
9.5
|
-0.025 |
|
Feb 98
|
9.475
|
10.25
|
-0.775 |
