이것은 페이지 Credit Risk Management Of Commercial Real Estate Exposures
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The Hong Kong Monetary Authority (HKMA) published today the classified loan ratio of the banking sector at the end of the second quarter. The ratio was 1.97%, broadly comparable to 1.98% at the end of March. As I have mentioned on various events, the classified loan ratio continues to face upward pressure, mostly driven by commercial genuine estate (CRE) loans. Pressures in worldwide CRE (consisting of retail residential or commercial properties and offices) stemming from the rise of e-commerce and remote operate in recent years are likewise apparent in Hong Kong. A boost in office completions has also led to continuing modifications in the costs and rents of CRE in Hong Kong during the very first half of 2025. Moreover, the high rates of interest environment over the past few years has worsened the debt-servicing problem of industrial residential or commercial property designers and investors, drawing market attention and raising concerns on the capability of banks to efficiently manage the relevant danger exposures and financial stability threat. I intend to clarify these inquiries here.
Standing together with enterprises
CRE rates and rents are currently under pressure from numerous aspects, consisting of rate of interest and market supply and demand characteristics, which have actually resulted in a decline in the worth of loan collateral. Borrowers are not surprisingly worried as to whether banks will require immediate payment. To address this, the HKMA and the banking sector have consistently stressed that while the fall in regional residential or commercial property prices and rents recently have caused a down change to the independent residential or commercial property assessments, banks think about a host of factors when evaluating credit limits, including the customer's credit demand, overall financial position and repayment ability. Banks will not adjust a credit limit merely due to a modification in the worth of the residential or commercial property collateral.
There have likewise been mistaken beliefs that property managers might decline to change rents in action to market conditions and even leave residential or commercial properties uninhabited out of issue over banks requiring loan repayments. However, this does not line up with banks' actual practices, and is also not logical from a danger management angle. In truth, banks have earlier made it clear that they would not require instant payment exclusively due to a decrease in rental earnings. This practical and versatile technique demonstrates banks' willingness to stand together with business, as well as their stance and commitment to ride out tough times with the neighborhood.
If a borrower in short-term financial difficulty breaches the regards to the loan covenant, will it lead to the bank demanding instant repayment? The answer is not necessarily so. In practice, banks will initially negotiate with the debtor, for example, by adjusting the repayment plan such as the loan tenor. Banks will take appropriate credit actions just as a last resort to secure the stability of their operations and the interest of depositors.
Protecting banking stability and depositor interests
The general public might therefore wonder if banks' assistance for business will come at the cost of banking stability and depositor interests. There is no need to fret as the HKMA has actually been carefully keeping track of the general healthy advancement of Hong Kong's banking sector. We think that the credit risk connected with CRE loans is manageable. A considerable part of Hong Kong banks' direct exposures relating to regional residential or commercial property advancement and investment loans are to the big gamers with reasonably great monetary health. For exposures to small and medium-sized local residential or commercial property designers and financiers, including some with weaker financials or higher tailoring, banks have actually already taken credit threat mitigating steps early on, and the majority of these loans are secured. Besides, there is no concentration threat at specific borrower level.
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A current media report highlighted the dangers related to CRE loans, with a particular focus on the accounting of banks' "anticipated credit losses". In reality, this is merely a computation based upon modelling for accounting functions. Loans classified as "predicted credit losses" do not always represent bad debts, and therefore can not be utilized as a basis for a comprehensive assessment of banks' asset quality.
Similarly, some other commentaries have focused entirely on banks' classified loan ratios, which offers a somewhat minimal point of view. Hong Kong has entered a credit downcycle over the last few years, having been impacted by elements like macroeconomic modification and interest rate level. This has naturally led to an increase in the classified loan ratio of the banking sector. While the classified loan ratio has slowly gone back to the long-lasting average of around 2%, from 0.89% at the end of 2021, the ratio stays far listed below the 7.43% seen in 1999 after the Asian Financial Crisis.
To acquire a thorough understanding of credit quality, one can consider the following commonly and long-used indicators:
- The very first basic indication is the capital adequacy ratio: The healthy development of the banking sector includes developing capital throughout the expansion stage of the credit cycle, such that when the credit cycle adjusts and we see credit costs go up and a wear and tear in possession quality, banks would have adequate capital to absorb the credit expenses. Banks in Hong Kong have ample capital - the Total Capital Ratio for the banking sector stood at 24.2% at the end of March 2025, well above the worldwide minimum requirement of 8%.
이것은 페이지 Credit Risk Management Of Commercial Real Estate Exposures
를 삭제할 것입니다. 다시 한번 확인하세요.