Economy woes lift bad-debt provision

PUBLISHED : Friday, 10 January, 1997, 12:00am
UPDATED : Friday, 10 January, 1997, 12:00am

The slowdown in the Hong Kong economy and China's credit squeeze were behind a sharp increase in provisioning by territory banks last year, according to Hong Kong Monetary Authority (HKMA) deputy chief executive David Carse.

Mr Carse, speaking yesterday at a review of the banking industry for 1996, said it had seen some deterioration in asset quality during the year.

Bad debt provisions made by the industry reached 0.13 per cent of total assets for the first nine months of the year compared with 0.06 per cent for the previous year.

'The reason for the increase in bad debts may be due to the slowdown in the economy and the Chinese credit squeeze policy which caused companies problems in repaying bank loans in the first half of last year,' he said.

Despite this, he said bad debt levels in Hong Kong were still low compared with other developed markets.

'In 1995, Japan had bad debt provisions of 0.99 per cent and the UK was 0.3 per cent, which is much higher than the provision level of the Hong Kong market,' he said.

Mr Carse said the authority already had taken action to ensure banks had taken enough measures to handle the increase in bad debt.

'The HKMA has internal guidance for external auditors to check whether banks have made enough provisions for the bad or doubtful loans,' he said.

'There are comparisons of provisioning policy of different banks and the HKMA will encourage banks to increase provisions when necessary.' He said the bad debt situation in the second half of last year had stabilised and he was optimistic about levels this year.

'The Hong Kong economy has showed signs of recovery,' he said.

'The US and other overseas markets also have recovered, which should increase the need for trade financing.' Mr Carse said it was necessary for Hong Kong to set up a credit bureau to avoid bad debts on personal lending.

''As personal lending is becoming more important in Hong Kong, it needs a credit bureau to provide enough information to assist banks to make credit assessment on lending to banks,' he said.

He said the Banking Advisory Committee had agreed on the principle of setting up a credit bureau.

The authority would consult the banking sector about the issue this year.

He said one major concern about the credit bureau was the law on privacy.

He said the authority might issue guidelines to banks on how they could disclose client credit information to the bureau.