Regulations to quell slight uptick in banks' credit losses

Credit losses will notably decline in 2021.

Hong Kong’s banking regulations and conservative lending practices should contain credit losses even if the sector sees a manageable increase this year, according to a S&P report.

Credit losses are likely to decline come 2021. GDP growth will also experience a downturn to -3.9% this year followed by a recovery to 4.8%, whilst private sector credit growth will probably remain moderate over the next year or two, the report said.

The severe impact on travel and tourism, hospitality, entertainment, trade, and retail sectors will drag down credit demand and quality, adding to the challenges Hong Kong banks have been facing since the start of the social unrest, US-China trade tensions, and China’s economic slowdown.

“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,” the report said.

Hong Kong is classified in group 2 under S&P’s Banking Industry Country Risk Assessment, alongside Austria, Belgium, Canada, Finland, Germany, Liechtenstein, Luxembourg, Norway, Singapore, Sweden, and Switzerland.