Hong Kong is heading for a ‘cataclysmic recession’ as city’s runaway debt service ratio imperils economy, research firm says

Hong Kong’s debt service ratio among private non-financial companies is the highest among 32 countries on the BIS list

The leverage is concentrated in the property and financial sectors, which account for more than a third of all loans in the city

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A pedestrian walking past closed retail shops in Mong Kok on 24 February 2020. Photo: K.Y. Cheng

Published: 7:30pm, 20 Oct 2020Updated: 4:12am, 3 Feb 2021

Hong Kong’s economy may be headed for a “cataclysmic recession” because private-sector borrowers are being challenged by the city’s worst growth contraction on record from paying off their debt, according to an independent research firm.

Private sector debt by Hong Kong’s non-financial companies soared to a record HK$10.9 trillion (US$1.4 trillion) in the first quarter, the highest since record-keeping began in 1999, according to the Bank for International Settlements (BIS), the central bank of global monetary authorities.

The debt service ratio for the sector – a measure of cost to repay borrowings – rose to a record 29.8 per cent by the end of March, the highest among 32 economies tracked by the BIS. The ratio has almost doubled from about 16.5 per cent a decade earlier.

The findings are a cry out for policymakers’ attention, underscoring the challenges faced by Hong Kong’s businesses as they try to survive a recession left behind by a coronavirus pandemic and almost two years of the US-China trade war. Hong Kong’s government last month extended the loans repayment holiday by two years to provide breathing room for small and medium enterprises (SMEs), defined as manufacturers with fewer than 100 workers, or non-manufacturers with less than 50 employees.

“Hong Kong’s private sector may perpetually leverage itself until debt service burdens reach some, as yet, unknown maximum level, eventually precipitating what would likely become a cataclysmic recession,” according to BCA Research in a note published on Monday.

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