HKMA warns rapid credit growth unsustainable

The agency plans to boost monitoring of the business plans and funding strategies of authorised institutions as banks’ HK dollar loan-to-deposit ratio rose from 71% to 78%.

The rapid pace of credit growth is unsustainable and will put pressure on funding and liquidity if it continues.

This was the warning from Monetary Authority Chief Executive Norman Chan in a letter to banks on Monday. He said total loans grew 29% last year and the banking industry's Hong Kong dollar loan-to-deposit ratio rose from 71% to 78%.

The primary causes for the rapid credit growth were strong demand for credit in property lending, which was up 19%, and non-bank Mainland exposures which were up 47%, according to an HKMA report.

In the latter case, he said the vast majority of borrowers were large state-owned enterprises, red-chip companies or their subsidiaries, or companies owned by provincial or municipal Mainland governments.

According to figures for January and February this year, total bank loans continued to grow robustly at an annualised rate of 26%, with the Hong Kong dollar and US dollar loan-to-deposit ratios rising further to 81% and 59%. He said it was hence necessary for the authority to boost its monitoring of the business plans and funding strategies of authorised institutions for the rest of this year.

He told institutions to reassess their plans and strategies, and submit them to the authority for review by April 30.