Hong Kong’s bad-debt bankers ramp up fire sales, liquidations as city’s distressed loan ratio hits a high

[HONG KONG] A small group of bankers in Hong Kong tasked with cleaning up the city’s unprecedented pile of bad debt is done playing nice.

They number under 200 people, less than 0.07 per cent of the city’s finance workforce. But these so-called special asset bankers are up against a large and increasingly urgent task: cutting a HK$200 billion (S$32.4 billion) pile of soured debt that has pushed the city’s distressed loan ratio to a two-decade high.

Working behind the scenes, the specialists have increasingly been turning to last-resort tactics of selling collateral or pushing borrowers into liquidation, often due to losses on Hong Kong commercial real estate, according to more than a dozen such bankers and people who work directly with them.

Lenders have been building out these squads – which some also call special credit, recovery and collection, or workout teams – as they seize a window of opportunity to cut losses and free up money for fresh lending as the rest of the economy rebounds.

At least half a dozen lenders in Hong Kong have increased their number of special asset bankers, people familiar with the matter said.

Among them, Bank of East Asia (BEA) and UOB’s Hong Kong branch have nearly doubled headcount since 2024, while Bank of China’s (BOC) Hong Kong branch and Hang Seng Bank have added a handful of the specialists to teams that already had more than 10 people, according to the people, who asked not to be identified discussing private matters.

A UOB spokesperson said the bank works constructively with customers facing challenges, while safeguarding the interests of its stakeholders. BOC and Hang Seng declined to comment, while BEA did not respond to requests seeking comment.

The work of such specialists can be unpleasant, given they are dealing with borrowers “at their lowest lows”, said Jason Bedford, a visiting senior research fellow at the East Asian Institute.

One banker at a Chinese lender, who asked not to be identified discussing personal details, described frequently working until midnight as his team grapples with up to 20 troubled loan cases at a time, more than double the load from just a few years ago. Even at that, he is increasingly going to the office on the weekends.

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As the streets on Saturday nights fill with shoppers, tourists and even some prospective homebuyers fuelling a buzz that Hong Kong’s bouncing back, the banker has often found himself at the office writing reports detailing the exact time of calls to delinquent borrowers and how many times they ghosted him.

Many of the clients the bank is finally pulling the plug on involve commercial real estate. While the residential market recovers from its deepest downturn in decades, the commercial segment is still grappling with vacancies and oversupply worsened by distressed fire sales.

That is all feeding a growing sense that lenders need to act faster to finally resolve more of the bad debt and build out firepower for new loans, especially as mega infrastructure projects loom.

Two cases in the past several months underscore the urgency, as the bankers helped appoint managers to take over and sell high-end office buildings.

Bank of China’s Hong Kong unit named PricewaterhouseCoopers partners as receivers to help offload the 25-floor HK NEO in Kowloon, near the old Kai Tak airport, as it tries to recoup what it can from a loan totalling HK$5.5 billion on which it was one of the lenders, according to documents seen by Bloomberg News.

In another part of Kowloon, Bank of East Asia appointed EY-Parthenon partners to seize and sell the office tower One Bedford Place, other documents seen by Bloomberg News show.

“There’s a clear shift from waiting to acting,” said Derek Lai, a senior partner on the global restructuring leadership team at consulting firm EY-Parthenon who has worked closely with teams dealing with bad loans for more than three decades. “Decisions are still case by case, but the tilt is now towards taking the hit and moving on, especially for commercial property loans.”

The shift stands out in a city that prides itself on supporting firms through periods of stress, a style codified by regulators as the “Hong Kong Approach to Corporate Difficulties” in the aftermath of the Asian financial crisis.

But patience is running thin after the distressed loan ratio rose to 2.01 per cent at the end of last year, the highest since 2004.

While lenders have ample capital, with total adequacy ratios several times above international minimum requirements, further risks have cropped up. One is that the Iran War threatens to push up interest rates as energy prices spike, worsening debt servicing costs for already struggling borrowers.

As lenders jockey to build out their squads, which range in size from a handful to a couple dozen, they are hiring candidates at other banks and restructuring advisory firms. Some have also reassigned credit risk specialists and front-office relationship managers, the people familiar with the matter said.

The work is unglamourous. Compensation can run at least 20 per cent lower than in front-office roles within the commercial banks, according to the people. From entry-level positions through team heads, annual pay ranges roughly from about HK$500,000 to HK$2 million, the people said.

The special asset bankers often prefer relative obscurity, as they try to attract less attention to the failed loans, the people familiar with the matter said. They have a reputation for rarely coming off mute on calls, only talking briefly if at all after others.

One of the rainmakers in the sector, Vincent Lau, head of the special credit team at one of the largest local lenders, Hang Seng Bank, has no profile picture on his LinkedIn page and no posts. That contrasts with profiles of many bankers in the city often highlighting major deals and awards. There was no reply to requests for comment from Lau.

At times in the industry, interactions can be uneasy between recovery specialists and relationship managers, who in some cases initiated the failed loans they’re now cleaning up, the people familiar with the matter said.

A relationship manager at a Chinese bank spoke of a recent encounter that he felt highlighted how styles can contrast across the roles.

At the end of a day when his bank sold a commercial complex tied to a soured loan, he proposed going to the bar district Lan Kwai Fong to celebrate. The bad debt colleague declined, and despite having worked together for months, did not engage with him in the office after that.

Personal styles aside, the challenges facing the bankers are clear, as the commercial property pain driving much of the bad debt drags on.

Despite some progress following several landmark deals, vacancies in commercial buildings remain elevated due to a wave of newly opened offices. Vacancies stood close to an all-time high at 16.8 per cent at the end of March, according to CBRE Group. That’s in contrast to the rebound elsewhere in an economy also buoyed by a hot initial public offering market.

As the special credit bankers push to free up more lending firepower, they’re pivoting to spend more time with insolvency advisers and lawyers. Others are even going to court to sue borrowers, a new experience for some.

The intensity can take a toll. For his part, the banker at the Chinese lender said he’s feeling burned out.

Even with additional help following team expansions, the volume of work for him and his peers surpasses almost any other period in their careers, he said.

“Once the credit environment turns, the job becomes about recovery, restructuring, and loss containment,” said Bedford at the East Asian Institute. “It’s complex and labour-intensive, but it becomes an absolutely critical function.” BLOOMBERG