[ET Net News Agency, 29 October 2019] S&P Global Ratings today said that political
risks brought about by the social unrest in Hong Kong are likely to be manageable for the
banking sector.
The credit rating agency's Banking Industry Country Risk Assessment (BICRA) for Hong
Kong is therefore unaffected. S&P believes the protests have eroded social cohesiveness
and weakened public support for Hong Kong's political and civil service institutions.
It thinks the weakening institutional capacity and policymaking could lower Hong Kong's
resilience against adverse economic developments. Counterbalancing this is S&P's
expectation of a mild and orderly correction in property prices amid a slowdown in credit
growth.
S&P expects credit losses in the banking sector to increase moderately and asset quality
to weaken. However, they should remain low and manageable in the global context, even with
a significant deterioration in the economic outlook for Hong Kong.
S&P revised its forecast for Hong Kong's GDP growth to 0.2% in 2019 and 1.6% in 2020 in
September this year, from 2.2% and 2.4%, respectively. The revised GDP growth forecasts
are significantly lower than the 3% recorded in 2018. Hong Kong's recent policy
announcements on supporting small and midsize enterprises and residential mortgages could
provide some cushion for the economy.
At the same time, it does not expect the banking sector to materially relax its
underwriting standards. The agency considers Hong Kong's banking industry risk to be the
lowest among its peers, mainly aided by prudent regulations and proactive supervision.
Any weakening in supervision or relaxation in underwriting in comparison to global
standards could weigh on S&P's assessment of industry risk. The banking sector in Hong
Kong has strengthened its capitalization over the past two to three years through
controlled exposure, regulatory tier-1 capital issuances, sufficient internal capital
generation, and, in some cases, asset disposals. This provides banks with more buffer to
absorb losses.
S&P expects the profitability of Hong Kong banks to compress slightly over the next year
due to a modest pickup in credit costs and narrowing net interest margins amid tight
competition and low-interest rates.
It believes the funding and liquidity profiles of Hong Kong banks continue to benefit
from a stable customer deposit base and limited reliance on short-term wholesale funding.
(KL)