Banks’ credit losses to revert to pre-COVID levels ahead of end-2022

It will likely decline faster, in light of the anticipated strong economic growth in the city.

Hong Kong banks’ credit losses are expected to normalize to their 2019 levels earlier than expected, S&P Global Ratings said in a report.

The rating agency had earlier projected that credit losses will return to pre-pandemic levels by the end of 2022, but this decline could come faster in light of the expected strong economic growth in the city.

“We expect the Hong Kong economy to sharply rebound supported by policy initiatives, strong economic growth in China, and pick-up in global trade,” the report also read.

“The banking sector's credit losses should therefore decline faster than we anticipated over the next two years.”

S&P forecasts that Hong Kong’s gross domestic product growth will improve to about 6.5% in 2021 and moderate to 2.5% in 2022.

This could be boosted by timely fiscal stimulus, an accommodative monetary policy, and an increasing vaccination coverage, which could also lead to a moderate increase in credit growth for the banking sector and property prices.

The increase in Hong Kong banks' credit losses in 2020 was manageable in a global context, which S& P linked to the reasonably tight underwriting standards, and government support targeting corporates and households.

“We do not expect any significant asset quality problems from the unwinding of the relief measures,” the agency said.

“Hong Kong banks extended loans mainly to non-delinquent borrowers, and the majority of the loans have already returned to normal repayment schedules. We believe any risk from the extension of the relief measures also remains limited,” it added, noting the banking system in Hong Kong has relatively low risks.