The regulator has expressed concern about the risks associated with rising bad loans.
Bloomberg reports that outstanding margin loans or borrowing against pledged stock has ballooned nine fold to $26.3b (HK$206b) at the end of 2017, prompting the Securities and Futures Commission to consult brokers about the associated risks in rising credit.
The regulator has expressed concern that higher levels of lending poses a great risk given that many of the involved firms are illiquid which means that it may take a while for brokers to recover money in case of liquidation.
“In a forced liquidation situation if it is illiquid, it means it takes several months if not years to complete,” said Deputy Chief Executive Officer Julia Leung. “The risk to the broker is not small.”
Share pledges by firms’ major shareholders contributed to the increase in margin loans, she said. These are companies listed on the city’s small cap exchange, or companies outside Hang Seng indexes, said Leung.
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