[ET Net News Agency, 8 May 2020] Hong Kong banks are likely to experience a manageable
increase in credit losses this year, followed by a notable decline in 2021, S&P Global
Ratings said today in a report titled, "Banking Industry Country Risk Assessment: Hong
Kong."
The credit rating agency expects the losses to be comparatively low in a global context.
This is because it expects Hong Kong's prudent and effective banking regulation and
generally conservative lending practices to contain the banking sector's credit losses.
S&P expects Hong Kong's GDP growth in 2020 to decline to negative 3.9% before strongly
improving to 4.8%. Hong Kong's private-sector credit growth will likely remain moderate
over the next one to two years, owing to lower credit demand in both Hong Kong and China.
The COVID-19 outbreak has added to the stack of challenges that Hong Kong banks already
face amid social unrest, U.S.-China trade tensions, and China's economic slowdown. Travel
and tourism, hospitality, entertainment, trade, and retail sectors will likely be the
hardest hit, dragging on credit demand and quality. Some of these sectors are already
under severe strain because of social unrest in Hong Kong.
S&P also expects some challenges to the Hong Kong property market. Homebuyer demand will
likely be dampened further and transaction volumes may be affected. That said, a
structural housing supply shortage, accommodative monetary policy, and room for policy
maneuvering should prevent any steep drop, the agency noted.
The sector's mainland China-related lending is subject to close monitoring by the Hong
Kong Monetary Authority. Such loans are also usually made to high-quality borrowers, with
a significant portion of the obligations backed by collaterals or guarantees.
S&P Global Ratings classifies the banking sector of Hong Kong (AA+/Stable/A-1+) in group
'2' under its Banking Industry Country Risk Assessment. Other countries in group '2' are
Austria, Belgium, Canada, Finland, Germany, Liechtenstein, Luxembourg, Norway, Singapore,
Sweden, and Switzerland. BICRA is scored on a scale from 1 to 10, ranging from the
lowest-risk banking systems (group 1) to the highest-risk (group 10). (KL)