May 9, 2014 / 1:01 AM / 4 years ago

Fitch Provides Update on HK Banks' China Risk and Other Key Themes

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Hong Kong Banking Sector Update - Investor Presentatihere HONG KONG, May 08 (Fitch) Fitch Ratings says individual Hong Kong banks' business models and market positions drive the quality of their cross-border expansions. The bigger and more advanced a bank's subsidiary operations in China, the higher the risks as and when borrowers shift from state-sponsored enterprises to private-sector entities. Banks with limited connectivity are more likely to increase interbank placements and bond investments while branches and subsidiaries of mainland Chinese banking groups are oriented towards their parents, the agency says in its Hong Kong Banking Sector Update for May 2014. The newly published slides formed the basis of presentations to investors in Hong Kong and Singapore, which coincided with further disclosure by the Hong Kong Monetary Authority (HKMA) at end-April on the risks to Hong Kong banks from their activities in China. The presentation offers the agency's view on various non-credit related risks such as collateral enforceability, yuan depreciation and the tapering of US stimulus. It also covers changes to the competitive landscape with increased activity of branches of foreign banks and the agency's assessment of the proposed resolution scheme and Basel III compliant bonds. The authorities' recent briefing on China exposure suggests that lending by small to medium-sized banks and borrowing by mainland private entities are most risky. The HKMA's overall definition of Chinese exposure is wide and there has been some variation over the years it has been collecting the data. The more comprehensive breakdowns are only available for one data point at end-2013. Hong Kong banks had China exposures of HKD6.2bn or 35% of system-wide assets, comprising HKD2.6bn of claims on mainland banks, HKD2.3bn of customer loans, HKD0.3bn of trade finance loans, HKD0.6bn of debt and equity investments, and HKD0.4bn in off balance-sheet items, largely trade-related acceptances. The classified loan ratio for mainland-related lending was 0.29%, although this varies from bank to bank, as captured in the Fitch presentation. This remained lower than the classified loan ratio for the total loan portfolio of 0.48% for the sector and 0.46% for eight mainland subsidiaries of Hong Kong banks. The majority of customer loans in China are provided by foreign bank branches (43%), in particular branches of Chinese, Japanese, Singaporean, Australian and US banks for which the regulator expects support from the respective head offices. Locally incorporated banks provided 36% of customer loans and their eight mainland subsidiaries the remaining 21%. Half of the borrowers are state-owned, 19% privately owned mainland Chinese entities and 31% non-mainland entities. The presentation slides, entitled 'Hong Kong Banking Sector Update', are available at or by clicking on the link above. Contact: Sabine Bauer Senior Director +852 2263 9966 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Chikako Horiuchi Director +852 2263 9924 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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