The Hong Kong Monetary Authority (HKMA) has dismissed speculation that it is planning to establish a “bad bank” to absorb non-performing loans in the local financial system, stating that the city’s banking sector remains stable, well capitalised and profitable.
“Overall, banks in Hong Kong maintain a healthy balance sheet; their credit risk is manageable and provisions are sufficient,”
the HKMA said, as reported by the South China Morning Post.
“The HKMA has no intention to set up the rumoured ‘bad bank’. We understand that the relevant banks also do not have such a plan.”
This came hours after Bloomberg, citing unnamed sources, claimed that Hang Seng Bank, Bank of Communications and other lenders were in discussions about forming a so called bad bank, an entity designed to take on troubled assets to help clean up balance sheets.
The HKMA, however, said there was no need to consider such a move, pointing to the sector’s strong fundamentals.
“The provision coverage ratio stood at over 140% and the banks also have good profitability,”
the regulator said, reaffirming that “the reports are groundless”.
According to Fitch Ratings, as cited in the Bloomberg report, soured loans in Hong Kong had risen to US$25 billion by the end of March, equivalent to 2% of total loans and marking the highest level in two decades.
Hang Seng Bank declined to comment on what it called market speculation, while Bank of Communications did not immediately respond to requests for comment.
Despite a modest increase in the sector’s bad loan ratio, from 1.96% in December to 1.98% in March, delinquency rates for credit card lending and residential mortgages remained low at 0.37% and 0.13% respectively, according to HKMA data.
The authority said it had consistently required banks to manage credit risk prudently, highlighting that first quarter pre tax profits among the city’s 30 retail banks rose by more than 15% year on year.
Benjamin Hung Pi-cheng, Chairman of the Financial Services Development Council, also sought to downplay concerns over potential systemic risks stemming from the property sector.
“There is no need to worry about anything akin to ‘too big to fail’, as the property sector represents only a small portion of Hong Kong’s economy and bank loans,”
he said.
“Therefore, the risks are manageable.”
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