Financial Secretary John Tsang Chun-wah has warned banks in the city that although they are relatively well positioned in terms of capital reserves, they need to remain alert to economic risks.
Speaking at the Hong Kong Institute of Bankers' annual conference yesterday, Tsang said the lenders maintained an average capital adequacy ratio of 15.9 per cent, higher than international levels of 10.5 per cent.
The ratio measures a bank's tier 1 and tier 2 capital - principally shareholder equity and retained earnings; and subordinated debt and revaluation reserves - as a percentage of its risk-weighted lending. It therefore provides an indication of the safety cushion available to protect depositors in the event of unexpected losses.
But even though the economy had remained stable, this could be affected by weakening exports and monetary easing measures from other countries, warned Tsang.
He also said Hong Kong should continue to help drive the internationalisation of the yuan and build on its leading status as an offshore yuan hub.
Speaking at the same forum, Wu Xiaoling, a senior mainland lawmaker and former deputy central bank governor, said the mainland would need to make the yuan fully convertible step by step taking a conservative approach.
This appeared to conflict with remarks from former central bank governor Dai Xianglong, who said in Tianjin this week that Beijing would probably take the groundbreaking step of making the yuan fully convertible as early as 2015.
The mainland initiated the process of making its currency convertible in 1996 when it opened its current account, allowing companies to exchange foreign currencies for trade deals.
At around 6.33 to the US dollar, the yuan is currently trading close to its highest level achieved in May. The currency has gained 0.2 per cent this week and 0.3 per cent since the end of August.
Wu said cross-border yuan trade settlements reached 868 billion yuan (HK$1.06 trillion) in the first half of this year.
Sean Craig, International Monetary Fund resident representative in Hong Kong, said yesterday that as European banks deleveraged and scaled back on issuing credit on a global scale, Asian banks had the capacity to step in and gain market share.
Deleveraging, or the reduction of their loan exposures, intensified sharply among banks in the second half of last year as the euro-zone crisis worsened.
With appropriate policies in place, banks were expected to deleverage US$2.2 trillion worth of loans between the end of last year and the end of next year, said Craig.
If policies failed to meet expectations and economies remained weak, banks could deleverage by as much as US$3.5 trillion to US$4 trillion.
Asian banks had now become the largest funders for long-term global financing, such as aircraft and shipping credit, Craig said.
However, these banks could face increased risks as they stepped up US dollar funding, he added, and Asian policymakers needed to continue to strengthen their foreign-exchange reserves to better buffer potential shocks.