HKMA rings alarm bell on loan growth

PUBLISHED : Friday, 26 July, 2013, 7:03pm
UPDATED : Friday, 26 July, 2013, 7:42pm

A jump in loans by Hong Kong’s banks has triggered concerns about rising risks to the city’s banking system and prompted the Hong Kong Monetary Authority to enquire about the reasons behind the growth.

Overall loan growth in the city accelerated to an annualised rate of nearly 40 per cent in June 2013 compared to 20 per cent in May, according to a spokesman at the HKMA, Hong Kong’s de-facto central bank.

While the HKMA does not set any regulatory benchmark on loan to deposit ratios for the city’s lenders, data from its website showed the loan-to-deposit ratio for banks in all currencies had spurted to its highest level at nearly 70 percent in May since early 2006, the period for which data is available.

We have been meeting with banks to understand the reasons behind the growth [and] whether they think it will continue
HKMA spokesman

“As such, we have been meeting with a number of banks to understand the reasons behind the growth, whether they think the growth momentum will continue or not, and how banks are managing the associated credit and liquidity risks,” a HKMA spokesman said.

Foreign currency loan growth has led the charge. According to the HKMA, the US dollar loan to deposit ratio rose by 5 percentage points to 85 per cent with large corporations likely leading the list of borrowers tapping funds in Hong Kong.

Earlier, local media reports said that authorities were worried about a jump in foreign currency loan growth.

A possible explanation behind the spurt in loans may be the turmoil in global financial markets since June when the US Federal Reserve signalled its desire to withdraw the supply of cheap money. That sent global financial markets, particularly debt markets – which companies tap to raise money – into a tailspin.

Only about US$1.4 billion (HK$ billion) in bonds have been sold in Asia excluding Japan in the month of June compared to an average $18 billion on a monthly basis for the first five months of the year, according to Thomson Reuters data.

Not a single bond has been sold in the offshore yuan markets in more than a month.