(Adds additional quote from HKMA in ninth paragraph)
By Jacqueline Poh
March 28 (RLPC) - The Hong Kong Monetary Authority (HKMA)
has asked banks to tighten their approval processes on
syndicated loans for Chinese companies raising offshore loans in
Hong Kong, banking sources said.
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 loan volume hit a record high of $80 billion in
2013 as a result, 86 percent higher than 2012, according to LPC
Nearly 70 percent of this volume was for Chinese companies,
which can save around 30 basis points on interest margins by
raising dollar loans in Hong Kong, compared to onshore China,
according to LPC data.
Syndicated loans issued to Chinese companies in Hong Kong
nearly tripled to $56 billion in 2013 from $20.7 billion in
Nearly half of this volume - $27.6 billion - is for
privately-owned Chinese companies. This is nearly three times as
much as 2012, when private Chinese firms raised $9.4 billion of
The growth in lending to Chinese private companies is
attracting concern after recent defaults on bonds and local
The HKMA has not issued any specific or official guidelines,
but a series of recent conversations with lenders is putting
pressure on banks to further improve their processes and
"The HKMA has been closely monitoring the overall credit
exposure of the banking sector. The process does not target at
any specific sector or jurisdiction, but focuses on distribution
of risks to different industries and geographic locations," a
HKMA spokesperson said on Thursday.
"The supervisory focus of the HKMA is to ascertain that
banks have put in place a sufficiently robust system of controls
to manage the specific risks that they are facing. In this
regard, we have requested banks to enhance their liquidity
management, continuously review their funding sources and loan
business plans and to make appropriate judgments when
necessary," the spokesperson said.
"In addition, banks should not relax their prudent
underwriting standards for loan approval which prove to be
effective. These principles apply to all loan types including
syndicated loans," the spokesperson added.
Banks already have strict credit approval processes and
limited country and industry exposures which eliminates some of
the risk of non-performing loans. Lenders are concerned that the
HKMA's attention could curb business.
"This pressure from HKMA could drive businesses out of Hong
Kong," said a syndicated loans banker.
To avoid adding more Chinese loans into portfolios, banks
might try to sell down the syndicated loans to banks in other
countries and regions including Southeast Asia and the Middle
East in the primary or secondary market.
(Editing by Tessa Walsh)