HKMA steps up its Mainland business monitoring

The aggregate exposure of Hong Kong's banking sector to non-bank Chinese entities up up 60% to $1.622tn at the end of 2010.

The Monetary Authority has stepped up its monitoring of banks' business in Mainland-related business to assess whether there is any deterioration in banks' underwriting standards and their concentration risk.

This was the message from Secretary for Financial Services & the Treasury Prof KC Chan to legislators on Wednesday, adding the authority has not identified major problems in banks' underwriting standards through on-site examinations.

He said Hong Kong banks engaging in Mainland-related business has become a natural trend. The aggregate exposure of Hong Kong's banking sector to non-bank Chinese entities rose from $1.014 trillion at the end of 2009 to $1.622 trillion at the end of 2010, up 60%.

The rising trend continues into 2011, albeit at a slower pace. The aggregate exposure grew 25% from the end of 2010 to $2.034 trillion, representing 13.3% of total assets, at the end of June this year.

The authority has required banks to make regular submissions of more comprehensive and detailed information for risk analysis, and increased the number and frequency of regular and thematic on-site examinations of banks.

It has also required banks to increase their regulatory reserve to build up a bigger cushion against possible deterioration in asset quality in future.

Regarding the lending rates and the distribution between loans for use in and outside Hong Kong, Prof Chan said these are individual banks' commercial decisions depending on various factors, such as customers' credit demand, risks, limits set by banks on their individual loan portfolios, availability of collaterals or guarantees, and funding costs. He said it is inappropriate for the authority to intervene in these commercial activities.