Fitch cuts HK growth forecast to 4.4pc on subprime, oil concerns

PUBLISHED : Thursday, 21 February, 2008, 12:00am
UPDATED : Thursday, 21 February, 2008, 12:00am

Fitch Ratings yesterday cut its estimate of Hong Kong's economic growth this year to 4.4 per cent from 5.3 per cent due to a host of factors ranging from the subprime mortgage crisis to high oil prices.

In a rare revision of its economic forecast so early in the year, the credit rating agency said Hong Kong, as an international market, would be hit by the US economic slowdown, subprime crisis, global inflation and higher oil prices. It also said Asian currencies gaining on the US dollar would affect regional exports.

James McCormack, a managing director of sovereign ratings at Fitch, is particularly concerned about high oil prices. At about US$100 a barrel, high oil costs would dampen Hong Kong and Asian countries' economic growth, he said. China still looked positive, but other Asian countries, such as Singapore and India, were likely to experience slower growth because they relied more on foreign capital flows than the mainland did.

In a slower economy, banks in Hong Kong would have lower earnings, said David Marshall, the managing director of Fitch.

'Hong Kong banks' earnings will be hampered by poorer economic growth, but they should still be able to do well for the longer term because of the high economic growth in China,' Mr Marshall said.

'Also, some banks have taken profits from the strong stock market, which will offset the provisions made for the subprime mortgage-structured products.'

The hardest-hit lender would be Citic Ka Wah Bank, but its ultimate parent, Citic Group, should help it grow in the long term, he said.

Fitch senior director Charlene Chu said the mainland's 7.1 per cent inflation rate, the highest in 11 years, would force Beijing to raise interest rates two more times this year.

Inflation, competitive pressures, snowstorms, the subprime crisis and uncertainty in the property market meant mainland banks would not repeat their strong growth last year, Ms Chu said.

She said Fitch would keep a close eye on the recent blizzards' impact, as many small enterprises had suffered substantial losses that would affect their ability to repay loans.

Lenders such as Industrial and Commercial Bank of China and the Bank of China claim they had made the necessary provisions for their subprime exposure.

But Ms Chu said disclosure of their exposure was vague.

She also said problems in mainland property lending could hurt the banks.