In Focus
FINANCIAL SERVICES | Staff Reporter, Hong Kong

Banking system credit growth to outpace nominal GDP growth in 2017

Expect a further increase in corporate and household indebtedness.

Although Hong Kong's systemwide credit growth was modest throughout most of 2016, loan demand rose strongly from the fourth quarter of 2016 onwards. Moody's expects banking system credit growth to materially outpace nominal GDP growth in 2017, leading to further increase in corporate and household indebtedness.

Here's more from Moody's:

We expect loan growth to average a mid-teens percentage point rate in 2017, up from 6.5% in 2016. Both loans for use in Hong Kong and outside Hong Kong are likely to drive overall loan growth, while trade finance demand should remain relatively stable.

The rebound in credit growth will imply a further rise in private sector leverage, which rose to a record high of 214% relative to GDP as of March 2017 (Exhibit 8). The rise in leverage has been broad-based: bank loans extended to corporates increased to 146% as of March 2017 from 94% at the end of 2009, while those extended to households rose to 67% from 55%.

The increase in corporate leverage is reflected in continued rise of debt/equity and debt/EBITDA ratios among listed companies (Exhibit 9). Some corporate borrowers will face heavier debt servicing burden if there is a faster-than-expected rise in interest rates or a drop in cash flow.

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