By Sumeet Chatterjee
HONG KONG (Reuters) – Hong Kong’s banks face at the very least two quarters of worsening asset high quality and slowing mortgage progress because the coronavirus outbreak hits commerce and shopper banking, analysts and bankers mentioned.
Lenders within the Asian monetary hub, together with HSBC
Hong Kong banks have Asia’s largest publicity to China, which accounted for 29.4% of banking system property within the first half of final yr, credit score rankings company Fitch says.
Among the banks have already began stress testing choose elements of their China and Hong Kong companies as fears develop of a pandemic of the flu-like virus that originated in China late final yr.
“Among the firms in Hong Kong had been already hanging from a thread after months of civil unrest and now the virus has come on prime of that,” mentioned Sonny Hsu, senior credit score officer for monetary establishments group at Moody’s Traders Service.
“The mixed impact can be far more. This time, it is going to be extra of an issue mortgage and credit score value problem,” Hsu mentioned.
An prolonged disruption to financial actions would weaken the banks’ asset high quality and profitability, and can be a credit score unfavorable, the score company mentioned.
“(The) first quarter is normally a busy month for us as purchasers work on their plans for the yr forward. This yr, the commerce finance quantity is down 15% to 30% in China and Hong Kong,” a senior banker at a big world financial institution in Hong Kong mentioned.
The most important affect on asset high quality in Hong Kong will come from retail, lodges and property as town’s financial system, already in recession after months of anti-government protests, faces elevated headwinds because of the coronavirus, the banker added.
Some banks are additionally involved in regards to the probably push from Chinese language authorities to increase mortgage reimbursement intervals in addition to make cheaper credit score accessible, the bankers mentioned.
“We aren’t excited about origination of recent enterprise a lot – (the) bulk of labor is concentrated on minimizing the hit to asset high quality. It will not be enterprise as standard for the following two quarters at the very least,” a retail banker with a world financial institution mentioned.
Unemployment in Hong Kong reached its highest in three years in January at 3.4%, whereas chapter petitions submitted rose to 703 final month up from 665 a year-ago, information confirmed.
HSBC, which made 40% of its income from China and Hong Kong in 2019, mentioned final week it might take as much as $600 million in extra provisions in opposition to mortgage losses if the coronavirus outbreak persists into the second half.
HSBC declined additional remark.
Hong Kong-based Financial institution of East Asia (BEA) <0023.HK> mentioned final Wednesday it anticipated a deterioration of 10-20 foundation factors in credit score value, the share of provisioning for dangerous loans out of complete lending, for its native enterprise in 2020 because of the financial downturn. BEA declined to remark additional.
StanChart, which additionally makes the majority of its income in Asia, is anticipated to echo these feedback when it stories on Thursday. It declined to remark forward of its outcomes.
(Reporting by Sumeet Chatterjee; Modifying by Alexander Smith)