Moody's warns Hong Kong banks over increased loans exposure to mainland

Ratings agency Moody's restated its negative outlook on the city's banking system yesterday in a new report highlighting the risks to lenders over the next 12 to 18 months from rapidly expanding exposure to mainland borrowers.

"Such expansion poses credit challenges as it increases the banks' exposures to China's economic and financial vulnerabilities, and pressures some of the banks' liquidity profiles and capitalisation levels," Moody's experts wrote in a 23-page analysis.

Moody's first issued its health warning on Hong Kong banks in June 2013. Since then the local economy has slowed and mainland loans have swollen while credit conditions have worsened.

Hong Kong's exposure to the mainland grew by 29 per cent in 2013, accounting for 20 per cent of total banking assets, or HK$2.3 trillion, by the end of last year, according to the report.

In a report earlier this month, Fitch Ratings said exposure to the mainland was equivalent to 34 per cent of Hong Kong banks' system-wide assets.

Standard Chartered added to the downbeat banking outlook as it issued a warning to investors that first-half profit would be around 20 per cent below that of the same period last year.

The statement, which came after the Hong Kong stock market closed, sent the bank's London-listed shares tumbling more than 5 per cent to their lowest level since August 2012.