Monetary authority pushes back on warning that soaring private-sector debt in Hong Kong could lead to recession
- The city, as an international financial centre, has higher debt because many companies raise money to finance activities elsewhere, HKMA says
- City had a low non-performing loan ratio of just 0.79 per cent at the end of the second quarter
Hong Kong’s de facto central bank has dismissed concerns that the city’s sky-high debt in the private sector might lead to a catastrophic meltdown, citing lower actual leverage in the economy and the presence of robust measures to safeguard its banking system.
The high level of private debt in the city was a result of Hong Kong’s status as an international financial centre, where many companies raise money for purposes outside the city, a spokesperson of the Hong Kong Monetary Authority (HKMA) said in a detailed statement on Tuesday night.
This came after international firm BCA Research, prompted by Bank for International Settlements (BIS) data that suggests the private-sector debt at the city’s non-financial companies in the first quarter had soared to its highest level since record-keeping began in 1999, warned of a “cataclysmic recession” if the companies continued leveraging. According to the BIS data, the debt service ratio for the sector – a measure of the cost of repaying borrowings – also climbed to a record high.
“To conclude that Hong Kong is vulnerable to macroprudential risk purely based on Hong Kong’s seemingly high private-sector credit is unsound, and overlooks the HKMA’s regulatory policy responses, and the fact that Hong Kong banks are among the top internationally in terms of safety and soundness indicators,” the spokesperson said.