ExclusiveHKMA urges Hong Kong banks to keep higher-than-Basel capital reserves
HKMA is leaning towards requiring lenders to hold up to 3.5pc of capital as a countercyclical reserve, exceeding Basel standards, sources say
An HKMA suggestion that banks keep more capital on hand than required by global standards is being opposed by local lenders, which argue it will restrict the type of business they can engage in and put them at a disadvantage with global rivals, sources say.
However, Hong Kong banks have historically maintained capital adequacy ratios well in excess of those required by the Basel committee on banking supervision, according to Hong Kong Monetary Authority figures. It wants banks to set aside as much as 3.5 per cent of their capital as a countercyclical buffer, compared with a maximum of 2.5 per cent required by Basel, two sources said.
Countercyclical buffers are meant to be built up during times of earnings growth so that they can be drawn down when things are not going so well.
"It is such a waste of bullets when Hong Kong banks have to hold more capital just to meet the local requirement instead of doing business," a senior executive at a leading bank said.
"Some disadvantage may be brought to Hong Kong banks if their peers in other regions just follow the [more lenient] global standard."
Local regulators are allowed to modify or adapt Basel requirements to address local circumstances. The range the HKMA had proposed for the countercyclical buffer, 0 to 3.5 per cent of capital, would be applied to all banks in Hong Kong regardless of size, the executive said.
Basel requires such buffers to be in the range of 0 to 2.5 per cent of a bank's capital, with the buffer allowed to shrink when times are bad. "The banks are negotiating with the regulator on the final standard on the buffer for Hong Kong," said another banker familiar with the talks. "But it is likely that we will have a higher requirement."