Local lenders ready for Basel III, HKMA says
Local banks in Hong Kong are well placed to meet higher international capital requirements from January but concerns remain over the details of the tough new rules, the Hong Kong Monetary Authority said.
The authority said local lenders are well prepared for the Basel III requirements, which will affect financial institutions in 27 countries, including the United States, Britain and mainland China. A phased implementation of the rules, which impose new capital and liquidity requirements, starts next year, and ends in December 2018.
In a paper presented to legislators yesterday, the HKMA said: 'In [the] monetary authority's assessment, local banks should be relatively well placed to meet the higher capital requirements. Some banks indicated that they will adopt a prudent approach in strengthening and consolidating their capital resources, and in managing their capital positions, in anticipation of the introduction of the enhanced regulatory capital standards.'
Local banks on average had total capital adequacy of 15.8 per cent as of December 2011, almost twice as high as the minimum 8 per cent required under Basel III. Local lenders also have an average 12.4 per cent of tier one capital, made up of ordinary shares and banks' retained earning, against a minimum of 6 per cent laid down under Basel III.
Basel III has added tough capital and liquidity standards for banks to follow, in an attempt to strengthen their ability to cope with shocks and address weaknesses exposed in the global financial crisis. However, some bankers have argued that the new rules are too harsh, and hurt banks' ability to lend money.
International lenders, including some in Hong Kong, are still lobbying for a relaxation of the new rules, and the HKMA said in the paper that it would continue to talk to banks to address their concerns.
For Hong Kong to implement Basel III, the HKMA needs legislators' approval for amendments to banking capital and disclosure rules.
Louis Tse Ming-kwong, director of VC Brokerage, said the HKMA paper showed local lenders could meet Basel III requirements, but this did not mean that the city's banking system had nothing to worry about.
'Overall, Hong Kong lenders are exposed to a lot of mortgage and property-related lending. They would be hard hit if the property bubble burst,' Tse said.
Financial institutions in this many countries will be affected by the Basel III reforms, which are designed to reduce risk