A severe credit crunch could hammer Hong Kong’s banks and those in Singapore should there be a huge jump in non-performing loans.
On the other hand, a report from Standard & Poor's Ratings Services also believes Hong Kong’s banks will be resilient to a mild slowdown in the Eurozone. In a worst-case scenario, however, S& P said Hong Kong and Singaporean banks' stand-alone credit standing could be threatened by a fall in asset prices and a drop in the risk appetite of wealth-management customers.
It said banks would benefit from a buffer against an expected modest worsening in loan quality and credit losses. Profit could be wiped out and capitalization at risk from depletion for banks that suffer more severe credit losses and have a weaker income base.
The loan quality of Hong Kong and Singapore banks could substantially deteriorate if the the Eurozone experiences a prolonged and severe recession.
Property prices, currently at record highs, could quickly slump if concerns about Europe widened into severe global risk aversion.
While the threat in Hong Kong appears less acute, a drastic and rapid exit of Eurozone banks from Hong Kong in a severe recession could disrupt the availability of credit, S&P said.
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