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Research Report

17/09/2020 17:19

Odds for US sanctions on HK financial institutions low - S&P

[ET Net News Agency, 17 September 2020] S&P Global Ratings said today that the
probability of severe U.S. sanctions on financial institutions operating in Hong Kong is
very low, although their impact would be high if imposed.
However, uncertainty will increase if tensions escalate between the U.S. and China. This
is according to a report titled, "What Is The U.S. Sanction Risk For Banks Operating In
Hong Kong?".
"Financial institutions are already assessing their business dealings and client
relationships in Hong Kong to comply with applicable rules and laws," said S&P's analyst
Harry Hu. "This includes Beijing's Hong Kong National Security Law, Washington's HKAA and
Trump's Executive Order 13936, as well as relevant releases from various regulators."
The agency assesses Hong Kong's banking industry and country risk as one of the
strongest in the world. This is mainly supported by Hong Kong banks' solid capital and
liquidity buffers as well as the special administrative region's prudent and effective
banking regulations, strong payment culture, creditor-friendly legal framework, and unique
position as a key gateway to China.
"While the financial institutions' initiatives and contingency plans help mitigate
compliance risk, some uncertainties remain, including how their interpretations and
actions may affect other players in Hong Kong's interconnected financial system," said Hu.
Sanctions could negatively affect a financial institution's reputation, investor
confidence, client relationships, financials, as well as funding and liquidity. This could
spill over to counterparties such as borrowers, investors, and depositors.
S&P thinks, how severely sanctions affect a financial institution depends on its
business scope. It believes severe sanctions will be extremely unlikely due to Hong Kong's
interconnectedness to the rest of the world, complexity of the global financial system, as
well as the potential unintended consequences on the U.S. and global financial markets.

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