HKMA says risk related to Hong Kong banks' exposure to China is controllable

HONG KONG Tue Aug 12, 2014 4:33am EDT

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HONG KONG Aug 12 (Reuters) - The risk related to the exposure of Hong Kong banks to mainland China is controllable, the chief executive of the city's central bank said on Tuesday.

The growing exposure of Hong Kong banks to the mainland in recent years has grabbed headlines about their ability to handle credit risks against the backdrop of a slowing Chinese economy.

Rating agencies and supranational bodies such as the International Monetary Fund have openly voiced concern.

Long praised by investors for their sound risk management, Hong Kong's mid-sized banks are increasingly becoming more exposed to any blowup in default risk as they hunt for new opportunities in the mainland amid sluggish growth at home. Related story:

Data from the Hong Kong Monetary Authority show a sharp rise in cross-border business.

By the end of 2013, the exposure of Hong Kong banks to mainland corporate borrowers constituted a fifth of their total assets, compared with around 5 percent in 2007.

Under an extreme scenario presented by the IMF in May, if the default rate in the mainland banking system's interbank obligations hits 80 percent, the losses would wipe out all the capital in the city's banking system.

System-wide, non-performing loans as a percentage of their total loan book remain below 1 percent so far. (Reporting by Michelle Chen; Editing by Kim Coghill)

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