HKMA passes first Basel banking test, raises cap requirement for five lenders

The Hong Kong Monetary Authority (HKMA) has passed an initial test on readying banks for a global crisis while also raising the level of capital the city's five biggest lenders will need to hold.

The Basel Committee on Banking Supervision said in its first assessment of Hong Kong that the city's framework for risk-based capital and liquidity coverage was Basel III compliant.

"What this is saying is that all the key elements of the legislative and regulatory framework for Basel III are in place so that implementation in Hong Kong can proceed according to the agreed international timetable," said Simon Topping, a partner at KPMG in charge of financial regulation.

As a member of the Bank for International Settlement's (BIS) Basel committee, Hong Kong is obligated to meet a list of capital and liquidity requirements designed to prevent public bailouts of banks in the event of a banking crisis.

The HKMA announced the capital requirements for the city's five largest banks on Monday. As a "domestically systemically important bank", Hongkong and Shanghai Banking Corp will be required to increase its capital adequacy ratio by 0.625 per cent by 2016.

BOC Hong Kong, Hang Seng Bank and Standard Chartered must add 0.375 per cent, and Bank of East Asia 0.25 per cent.