IMF affirms Hong Kong’s “resilient” financial system

But it flagged points of exposure to macro-financial risks.

The International Monetary Fund (IMF) has affirmed the resilience of Hong Kong’s financial system in the face of severe macro-financial shocks.

In its Financial System Stability Assessment (FSSA), the IMF recognised Hong Kong’s sound policies, ample buffers and strong oversight.

It, however, raised that the system's macro-financial vulnerabilities lie in its extensive linkages with Mainland China, stretched real estate valuation, and exposure to global market and domestic risk sentiment.

The IMF recommended that the government enhance its oversight over banks with foreign branches and local subsidiaries in Hong Kong, heighten monitoring of liquidity risks of banks with multiple group entities.

It added the government should also ensure internal risk models to look over lending to Mainland China are “sufficiently forward looking.”

The Hong Kong government, for its part, welcomed the affirmation of the IMF, noting it will study the recommendations made under the FSSA.

“We will continue to work closely with regulators to maintain our robust and forward-looking financial regulatory regime and upgrade the financial infrastructure, in order to fortify our status as an international financial centre,” Secretary of Financial Services and the Treasury Christopher Hui said.

The IMF Mission visited Hong Kong in September 2019, followed by a virtual mission in February and March 2021 for discussions with government authorities, financial regulators and market players.

The FSSA Report was considered and adopted by the IMF Executive Board on May 21, 2021.

Read more about the FSSA Report here.