Hong Kong banks seek longer-term funds to match loan duration after tightening

HKMA rule tightening prompts city's banks to boost their capital to match loan books

PUBLISHED : Tuesday, 22 October, 2013, 3:28am
UPDATED : Tuesday, 22 October, 2013, 3:28am

Banks in Hong Kong are seeking billions of dollars in long-tenor funding to cope with the newly tightened liquidity requirements of the Hong Kong Monetary Authority.

The rules would have a greater impact on wholesale banks, which do not have a sufficient deposit base relative to their loan growth, said Andrew Fung Hau-chung, an executive director of Hang Seng Bank.

"Those banks will have to increase their long-term funding either by borrowing from parent groups or issuing bonds in the capital market," Fung said.

The city's de facto central bank said last week that the value of loans extended in the first eight months of this year increased 18.8 per cent. It also said it would require banks to secure funding that more closely matched their lending books.

The HKMA said it expected more than 20 banks might be required to boost funds from their stable funding source, depending on their full-year loan growth.

Banks with an aggressive lending strategy - that is, total loans in excess of 70 per cent of total customer deposits - would need to be proportionally funded by stable term funding with remaining maturity beyond six months, according to the authority.

Paul Wong, the chief of treasury at Shanghai Commercial Bank, said he expected the HKMA to trim credit growth to the low-teens annually, from about 20 per cent or more in recent years.

Lending in Hong Kong has surged to record levels as mainland companies attracted by the biggest discount over onshore financing in four years boost fundraising in the city, Bloomberg reported yesterday.

Syndicated loans jumped to US$48.7 billion as the amount borrowed by mainland companies such as CNOOC and Huawei Technologies doubled.

Mainland-related lending was the main target of the HKMA tightening, bankers said. Mainland and international banks in Hong Kong were the most aggressive lenders last year, according to a KPMG report last month.

Six of the top 10 mainland banks had double-digit expansion last year, including China Construction Bank (Asia), the Hong Kong wholesale branches of Agricultural Bank of China, China Development Bank, China Construction Bank and Industrial Bank of China.

International banks such as JP Morgan reached asset growth of 35 per cent last year, while local banks had growth rates ranging from 4 to 13 per cent, KPMG said.

Tenor matching will take place next year.

The three-month interbank lending rate rose to 0.38429 per cent yesterday from 0.38357 per cent the previous trading day, reflecting increased demand for the long tenor funding.

Bankers said the cost of funding was likely to rise as a result of the new requirements and the scaling back of quantitative easing by the US Federal Reserve.