You won't believe this is how big Hong Kong banks' credit exposure to China is

It’s as big as $3.5trn.

According to Barclays, the Hong Kong banking sector has HK$3.5trn (=RMB2.8trn) of credit exposure to Mainland China.

This includes both on and off-balance-sheet items (letters of credit, guarantees and undrawn commitments), equivalent to 1.8% and 21% of China and Hong Kong's banking system assets, respectively.

Here’s more from Barclays:

We estimate this comprises HK$1.9trn of loans and HK$1.55trn of other debt and off-balance-sheet items.

Hong Kong supplies HK$2.2trn of liquidity to China on a net basis. This is small in the context of China's large banking system, but the liquidity drag to Hong Kong is material, equivalent to 24% of HK's system deposits.

We believe some degree of greater two-way RMB movement is positive for banks, which benefit from corporates increasingly hedging their FX positions.

Banks generally do not take direct exchange risk other than acting as counterparty for client transactions.

Asset quality overall is a key risk to banks' profitability and capital, not only in relation to China-related lending, given that credit cost and NPLs are at record lows, and with interest rates in Hong Kong likely to normalise over the medium term.