• Thu
  • Dec 18, 2014
  • Updated: 2:01pm
BusinessBanking & Finance

Moody's warns Hong Kong banks over increased loans exposure to mainland

Increased exposure to mainland borrowers poses risks to banks, says ratings agency, amid concerns over companies' ability to repay loans

PUBLISHED : Thursday, 26 June, 2014, 11:38pm
UPDATED : Friday, 27 June, 2014, 7:32am

Ratings agency Moody's restated its negative outlook on the city's banking system yesterday in a new report highlighting the risks to lenders over the next 12 to 18 months from rapidly expanding exposure to mainland borrowers.

"Such expansion poses credit challenges as it increases the banks' exposures to China's economic and financial vulnerabilities, and pressures some of the banks' liquidity profiles and capitalisation levels," Moody's experts wrote in a 23-page analysis.

Moody's first issued its health warning on Hong Kong banks in June 2013. Since then the local economy has slowed and mainland loans have swollen while credit conditions have worsened.

Hong Kong's exposure to the mainland grew by 29 per cent in 2013, accounting for 20 per cent of total banking assets, or HK$2.3 trillion, by the end of last year, according to the report.

In a report earlier this month, Fitch Ratings said exposure to the mainland was equivalent to 34 per cent of Hong Kong banks' system-wide assets.

Standard Chartered added to the downbeat banking outlook as it issued a warning to investors that first-half profit would be around 20 per cent below that of the same period last year.

The statement, which came after the Hong Kong stock market closed, sent the bank's London-listed shares tumbling more than 5 per cent to their lowest level since August 2012.

The profit warning also dragged HSBC stock down by around 1 per cent as investors reassessed the risks in the key Asian markets in which both banks earn most of their profits.

The Moody's analysis reflects those concerns, despite signs of stabilisation in Hong Kong property prices and broadly benign credit market conditions.

At the heart of the concern over rapid growth in exposure is mainland firms' ability to repay that debt as the economy there slows and the central government attempts to reform its inefficient state sector.

The key to keeping loan books healthy will be whether a raft of recent efforts to stabilise economic growth on the mainland work, according to Liao Qun, senior vice-president of strategy and planning at Citic Bank.

"If China can maintain above 7 per cent growth this year, then I think the risk is low," Liao told the South China Morning Post. "That means there will be no massive defaults for mainland companies this year." The mainland government has a growth target of 7.5 per cent this year.

The Hong Kong Monetary Authority said the growth in exposure was a "natural consequence" of China's economic development.

"The results of our supervisory works suggest that the risks of mainland-related loans are prudently managed by banks," an authority spokeswoman said.


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As a Hong Konger, I have never been this depressed. Hong Kong is struggling with shortage of land, shortage on recreational activities, shortage on recycling facilities, shortage on landfill, shortage on compassion, shortage on team spirit, shortage on clean air, shortage on clean water, shortage on creativity, shortage on love. Ah! And our outstanding university students are short on respect.
If the forecast growth for China is 7.5%, you can be sure the CCP govt figures will be just that. Any numbers that come out of China are notoriously dubious and any bank that takes them at face value is either naive, complicit or a mixture of both.
China too big to fail? Haven't we heard that term used before?
Let's see, wasn't Moody's one of the 2 ratings agencies that categorized pre-finanacial meltdown "junk" securities as A+? Just before the world's economy fell apart?

On a related topic, seems the statute of limitations is about to expire so no banksters will go to jail for their malfeasance. A real shame.
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That's right !
And who rates the rating agencies?
Who should money be lend to? The bankrupt United States of America?
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