Fitch Issues Warning On Banks Over HK Sanctions

The credit rating agency, Fitch, has warned that banks with links to China could be caught up in US sanctions aimed at punishing those who are believed to be undermining Hong Kong’s autonomy.

Last month, the Trump administration imposed sanctions on Chief Executive Carrie Lam and other top Hong Kong and mainland officials over Beijing's imposition of the national security law in the SAR. In the coming weeks, Washington is expected to draw up a list of financial institutions said to have engaged in significant transactions with those who have allegedly sought to undermine Hong Kong's autonomy and people's human rights.

Banks and financial institutions complying with the sanctions could draw the wrath of Beijing and put their China business at risk. On the other hand, they could be penalised in their home countries for helping their clients evade sanctions and tariffs.

In a new report, Fitch said Chinese banks and international non-US banks with connections to China could become ensnared in processes leading to US sanctions.

The agency said the sanctions could pose "reputational risk" for banks, pointing out that banking giants HSBC and Standard Chartered are reviewing "potential escalation scenarios". But it also said for now, foreign banks appeared to be undeterred from continuing to build their presence in China.

As for major Chinese banks, Fitch said they are unlikely to face sanctions because of the threat of retaliation from Beijing.

It pointed out that while Chinese and Hong Kong banks could be affected by sanctions limiting their US connections, most of them only have a small presence there, so the impact on their businesses is not expected to be big.