April 15, 2014 / 8:36 AM / 3 years ago

HKMA says mainland-related lending underpinned by genuine demand

HONG KONG, April 15 (Reuters) - The Hong Kong Monetary Authority (HKMA) said on Tuesday that mainland-related lending in the city’s banking sector is supported by genuine economic activities, countering fears about exposure to rising levels of bad debt in China.

The comments came after Hong Kong banks ramped up lending to China in recent years, fueling concerns about their credit exposure to the mainland at a time when sliding economic growth and defaults are making investors nervous.

Some market observers consider that even a modest increase in non-performing loans would have a significant impact on Hong Kong bank profits, suggesting the sector will be a sensitive indicator of China’s debt markets in the year ahead.

At the end 2013, the Hong Kong banking sector’s total mainland-related customer loans hit HK$2.276 trillion ($293.53 billion) and trade finance loans reached HK$313 billion, according to data from the city’s de-facto central bank.

“Based on our supervisory work, we are satisfied that mainland-related lending is generally supported by genuine economic activities,” Arthur Yuen, deputy chief executive at the HKMA, told reporters.

The HKMA does not set any loan quotas for banks, but banks have to make sure their credit underwriting standards are robust when they expand loan books, Yuen added.

Banking sources told Reuters Basis Point in March that the HKMA has asked them to tighten approval processes on syndicated loans for Chinese companies raising offshore loans in Hong Kong. ($1 = 7.7540 Hong Kong Dollars) (Reporting by Michelle Chen and Lawrence White; Editing by James Pomfret and Stephen Coates)

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