Banks told to match loan growth with stable funding

In a bid to curb rapid credit growth in the city, the Hong Kong Monetary Authority has told banks to ensure they match deposit and loan tenors to maintain a stable source of funding.

And early signs are that the authority is likely to achieve its aim, with some bankers already saying they would prefer to slow lending growth rather than leave money in idle deposits.

The comments came after banks received documents from the HKMA last week explaining how it wanted them to do the calculations to ensure they held a stable funding source that matched their deposit and loan tenors (the amount of time left for the repayment of a loan or maturity of a deposit) if their outstanding loans had grown by more than 20 per cent this year.

The HKMA took the step after noting on October 18 that outstanding loans in the first eight months of this year increased by 18.8 per cent. Chief executive Norman Chan Tak-lam said banks would be required to secure funding that more closely matched their lending books.

"We are now preparing to match the requirement with funds in longer tenors, and this will drive up our costs of funds," said Wing Lung Bank treasurer Terry Siu Kai-hung. "But quite a portion of our customer deposits are backed by certificates of deposit, and from our assessment the new requirement will not have a significant impact on us."

Some bankers said the requirement would act as a brake on their lending strategy. "It is not worth lending so much money - especially in loans with such low interest rates," said a senior bank executive who declined to be named.