Hong Kong steps up supervision of banks' credit risk management

HONG KONG (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 (S$368.1 billion) 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 financial centre.

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 (S$100.3 billion) in 2013 as a result, 86 per cent higher than 2012, according to LPC data. Nearly 70 per cent 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 2012.

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.