By Saikat Chatterjee
HONG KONG, April 9 Hong Kong banks' rising
exposure to mainland China requires close monitoring and
cooperation with Chinese supervisors, but stress tests show they
are well positioned to absorb potential losses, the
International Monetary Fund said on Wednesday.
As financial ties between Hong Kong and China have deepened,
banks' exposure to non-bank mainland China entities have grown
significantly since 2010, the IMF said.
A broad measure of banks' exposure to non-bank mainland
China entities (NBMCE) has risen to 19 percent of total assets,
the IMF said in a review of the HK economy. This was in the low
single digits in 2007, according to Hong Kong Monetary Authority
The NBMCE is used by the HKMA, the city's de-facto central
bank, to track loans by the territory's banks to entities in
NBMCE includes exposure to resident mainland affiliates for
use outside of Hong Kong, lending of Hong Kong bank subsidiaries
in the mainland, and borrowing by foreign companies for use in
The IMF said Hong Kong's banking system was "well
positioned" to absorb losses in adverse scenarios, such as lower
growth in China and Hong Kong, higher U.S. interest rates and
asset price shocks.
The IMF expects Hong Kong's economy to grow 3.75 percent in
2014, up from 2.9 percent in 2013 due to a recovering global
economy. It said the main domestic risk for the city was a
disorderly correction in property prices.
Banks in Hong Kong have taken over lending to China that
foreign banks once dominated, drawn by cheap funding rates
following the global financial crisis, a voracious appetite from
Chinese borrowers and healthy growth in the world's
Hopes of that rapid growth have enticed regional and Chinese
lenders to buy their way into a slice of the action.
Last week, Oversea-Chinese Banking Corp Ltd
offered to pay almost $5 billion for one of Hong Kong's last
remaining family-owned banks, Wing Hang Bank Ltd.
Yue Xiu Group, the trading arm of China's Guangzhou city
government, paid a multiple of 2.08 times to buy Hong Kong's
Chong Hing Bank last year.
(Reporting by Saikat Chatterjee; Editing by John Mair)