Investment Immigration to Hong Kong focus on Hong Kong News: The Hong Kong Monetary Authority (HKMA) continues to monitor loan growth in the local banking sector. Yesterday, it sent a letter to the Hong Kong Association of Banks announcing optimization measures to revise stable funding requirements. These include a requirement that banks with an annual loan growth of 20% or more must have stable funding support; starting from January next year, this threshold will be reduced to an annualized growth rate of 15%. HKMA Chief Executive Norman Chan previously stated that the 20% loan growth figure was not a fixed indicator and could be revised by the authority. Banking industry analysts suggest that these optimization measures are not due to strong capital demand, but rather in consideration of the impending interest rate hikes in the United States and potential capital outflows from Hong Kong, raising concerns about whether banks will have sufficient funds to support loan growth.
Since last year, as loan growth in local banks accelerated, the HKMA implemented stable funding requirements, mandating that banks with an annualized loan growth of 20% or more must provide stable funding to enhance credit risk management. Subsequently, overall loan growth in the local banking sector slowed, with the annualized growth rate dropping significantly from 22.9% in the first quarter to 7.7% in the third quarter, while the annualized growth for the first three quarters was 15.6%. However, the HKMA introduced these optimization measures yesterday, presumably in the hope of further increasing the sensitivity of banks to risk management.
In addition to lowering the loan growth indicator from 20% to 15%, the optimization measures also include a change to the exemption threshold: previously, stable funding requirements did not apply to banks with total loans under HK$5 billion; starting from January next year, this requirement will not apply to banks with total loans under HK$10 billion. Furthermore, the calculation of the loan growth rate will be changed from the previous annualized annual loan growth rate to the average loan growth rate over the past 8 quarters.
The HKMA stated that the newly revised stable funding requirements focus on adjustments to the calculation method and will not change the policy objectives. After the optimization of the stable funding measures, the impact on different banks will vary depending on the future loan growth of individual banks and the structure of their balance sheets. The HKMA assesses that the number of banks subject to the requirements will not differ significantly under the old and new measures.
Liu Weiye, Head of the Development Strategy Research Group at Bank of Communications (Hong Kong Branch), stated that when the HKMA introduced the stable funding measures at the beginning of this year, it was because of strong loan demand leading to a surge in loans, while deposit growth could not keep up, hence the introduction of the relevant arrangements. However, the current situation in Hong Kong is uncertain, and it is unclear when the "Occupy Central" movement will end; both customer loan demand and banks' willingness to lend have decreased significantly. He believes that by introducing these optimization measures at this time, the HKMA is preparing for large-scale capital outflows to ensure banks do not face funding problems. He also pointed out that as of the end of September, Hong Kong's annualized loan growth was approximately 11.7%, not yet accounting for the "Occupy Central" factor, while deposit growth was only 8.1%, pushing the Hong Kong dollar loan-to-deposit ratio to a high level of 81.8%.