An economic slowdown will affect the asset quality of lenders this year, Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong warned yesterday. The head of the city's de facto central bank said the economy was set to grow more slowly after five years of robust growth since the outbreak of Sars in 2003 last crimped Hong Kong's expansion. 'When the economy has been growing at such a robust pace for five years, it's questionable whether it will be sustained,' Mr Yam said in a television interview yesterday. 'But any slight adjustment [to the economy] is normal.' He said slowing growth in the United States and the mainland, Hong Kong's two largest trading partners, would continue to cloud the economic outlook. This would, in turn, worsen the asset quality of lenders. But it was hard to say whether banks might lose money this year, he added. Lenders have warned of tough times in the second half after their profitability was hit by write-downs on investments in US home loans. Bank of East Asia, the city's fifth-largest bank, has reported a 52.4 per cent drop in first-half earnings, its biggest decline in interim profits since 1998. Other mid-tier and small banks, such as Wing Lung Bank, Dah Sing Bank, Chong Hing Bank and Wing Hang Bank, have also posted lower earnings during the period. 'It's unlikely that we'll see lenders setting aside as much in subprime-related provisions as we saw in the first half and last year,' said Ivan Li Sing-yeung, an analyst at Kim Eng Securities. 'The chances of profit falls or even losses for the full year are small. But the outlook remains difficult under the current operating environment.' Battered by extreme weakness in global stock markets, Mr Yam said he was not optimistic about the Exchange Fund's performance in the third quarter. The HK$1.4 trillion fund suffered a record investment loss of HK$35 billion in the first half. Many observers expect the fund to post a full-year loss for the first time since the Hong Kong Monetary Authority was set up in 1993. Separately, Mr Yam said there was an urgent need to implement a direct overseas investment plan, or the 'through-train' scheme, to ease the glut of hot money pouring into the mainland financial system. 'The through-train policy could head to Hong Kong, Singapore, London or New York, providing the capital is flowing out in an orderly manner,' he said.