Regulation of mainland China's banking risks to intensify, says Fitch
Greater exposure to the mainland by Hong Kong lenders is a major concern, says ratings agency
The recent stress test required by the Hong Kong Monetary Authority would protect both borrowers and banks from a potential interest-rate rise, but banks' exposures to the mainland remained a major worry and the regulation of such risks is likely to increase this year, according to Fitch Ratings.
Mainland firms are borrowing in Hong Kong because of lower funding costs in the city. Fitch estimated such exposure to be 35 per cent of the total assets of the local banking system at the end of last year, up from 31 per cent in the first half.
"The authorities have so far refrained from regulating specific China risks, but supervision is likely to intensify in 2014," Fitch senior director Sabine Bauer wrote in a report.
Moody's last week assigned a "negative" rating on Hong Kong's banking system for the second consecutive year because of concerns about lower profitability and growing credit risks on the mainland.
Raymond Yeung Yue-ting, a senior economist at ANZ Bank, said he expected the HKMA to focus "on the compliance and risk management aspects" of the issue.
In a bid to curb the growth of household debt in the city, HKMA ordered banks to conduct internal stress tests on their personal loan portfolios after interest rates rose three percentage points. They were also told to review personal loan exposures and approval procedures.
Fitch said banks' risk appetite for personal loans varied. Bank of China (Hong Kong), Standard Chartered, Industrial and Commercial Bank of China (Asia) and Chong Hing Bank have grown the fastest in the city.
Shanghai Commercial Bank carried the heaviest exposure to personal loans, which stood at 11.6 per cent of their entire loan portfolio, it added.
