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Eddie Yue: Credit Risk of HK Commercial Real Estate Loans Manageable
Recommend 15 Positive 34 Negative 11 |
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The Hong Kong Monetary Authority (HKMA) announced that the classified loan ratio of the banking sector at the end of 2Q25 was 1.97%, broadly similar to 1.98% at the end of March. Eddie Yue, Chief Executive of the HKMA, published an article in inSight saying that the classified loan ratio continues to face upward pressure, primarily driven by commercial real estate (CRE) loans, but he believed that the credit risk associated with CRE loans is manageable. A significant portion of Hong Kong banks' exposures relating to local property development and investment loans are to the large players with relatively good financial health. For exposures to small and medium-sized local property developers and investors, including some with weaker financials or higher gearing, banks have already taken credit risk mitigating measures early on, and most of these loans are secured. Besides, there is no concentration risk at individual borrower level. A recent media report highlighted the risks associated with CRE loans, with a particular focus on the accounting of banks' 'expected credit losses'. He believed that this is merely a calculation based on modelling for accounting purposes. Loans classified as 'expected credit losses' do not necessarily represent bad debts, and therefore cannot be used as a basis for a comprehensive assessment of banks' asset quality. Furthermore, he said that the establishment of a 'bad bank' is an extraordinary measure which would only be considered when banks have very serious balance sheet problems. This is entirely inconsistent with the current situation of banks in Hong Kong, which are operating in a sound manner with strong financial strength. AASTOCKS Financial News Website: www.aastocks.com |
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