Hong Kong’s de facto central bank and the city’s largest lender have issued separate statements to assuage concerns about a glut in the commercial property market, saying that the local banking system remained robust and well-capitalised.
Risks associated with commercial real estate (CRE) loans were “manageable”, as the classified loan ratio – a measure of borrowings deemed substandard, doubtful, or at loss – shrank slightly to 1.97 per cent in the second quarter, from 1.98 per cent at the end of March, said Eddie Yue Wai-man, the chief executive of the Hong Kong Monetary Authority (HKMA).
“Hong Kong’s banking system is well-capitalised and has sufficient provisions and good financial strength to withstand market volatilities,” Yue said in a blog post on the HKMA’s website on Wednesday.
Hong Kong’s property slump, currently in its sixth year, has entered a new normal, as a confluence of factors from high interest rates and macroeconomic pressure to low demand amid a supply glut has weighed on the market. As prices and rents fell in residential flats, shops and offices, the value of loan collateral declined.
Almost three-quarters of HSBC’s Hong Kong commercial property loan book was flashing warning signs by the end of June, while the amount of loans bearing increased credit risk had almost tripled, according to a media report on Tuesday based on its own calculation.
