HONG KONG, April 16 (RLPC) - The Hong Kong Monetary
Authority (HKMA) is stepping up its supervision of
Hong-Kong-based banks' credit risk management by asking banks to
show stable funding requirements and agree to regular onsite
examinations of credit underwriting processes and
stress-testing, the HKMA said in a statement.
These measures come after a steep rise in offshore lending
to Chinese mainland companies by Hong Kong-based banks. Chinese
onshore companies borrowed HK$2.276 trillion of customer loans
at the end of 2013, excluding HK$313 billion of trade finance
loans, according to the HKMA.
"The increase in Hong Kong banking sector's mainland-related
lending is a natural consequence of the growth of the mainland
economy and development of mainland corporates," said HKMA,
which reinforces Hong Kong's role as a significant international
Hong Kong banks' exposure to Chinese companies has soared
since mid 2013, after government regulations designed to curb
onshore US dollar lending forced Chinese companies offshore to
raise foreign currency loans.
Hong Kong syndicated loan volume hit a record high of US$80
billion in 2013 as a result, 86 percent higher than 2012,
according to LPC data. Nearly 70 percent of this volume was for
Chinese companies, which save around 30 basis points on loan
interest margins by raising dollar loans in Hong Kong, compared
to onshore China, the data shows.
Syndicated loans issued to Chinese companies in Hong Kong
nearly tripled to US$56 billion in 2013 from US$20.7 billion in
The HKMA said that it is important to ensure that credit and
liquidity risks are properly managed in this context.
"It is for this reason that the HKMA has stepped up its
supervisory efforts in credit risk management over the past few
years," the HKMA said.
Loan bankers said that the HKMA has been playing a more
active role and introducing more stringent measures, including
more regular examinations, since the end of 2013.
The most challenging guideline for banks is the stable
funding requirement, which requires lenders to maintain a
specific level of loan growth against a stable funding
Most banks were advised to have 20 percent loan growth
against their stable funding requirement level. The 20 percent
level was set according to industry average in 2013, the HKMA
However, a 44.5 percent annual surge in total loans of the
Hong Kong banking sector in January prompted the HKMA to review
the stable funding requirement level before the planned date at
the end of June.
"Against this background, the HKMA considered it necessary
to review the stable funding requirement earlier, using
end-March 2014 positions instead of end-June 2014 positions,"
Loan bankers however said that the stable funding
requirement is curbing loan growth in Hong Kong.
Some banks said that they have moved some of their loan
assets to foreign headquarters or overseas branches in order to
meet the HKMA's 20 percent requirement.
The HKMA's requirements could create an uneven playing field
that could penalise new branches or banks returning to loan
"A new branch which starts from zero would of course record
a more than 20 percent jump in loan growth given their mandate
to book new loan assets," said a senior loan banker with a
Foreign banks based in Hong Kong are concerned, but local
banks with lower deposits said that they will not be able to
meet the stable funding requirement and may have to cut down on
their lending, which is not the aim of the HKMA.
"We do not want them to cut back their lending," said Arthur
Yuen, deputy chief executive of the HKMA.
Yuen said the HKMA would like to make sure that there is
still robust liquidity when banks expand loan growth, adding
that the HKMA introduced these guidelines to prevent a sudden
loss of liquidity, as seen in 2009.
(Editing by Tessa Walsh)