HSBC warns Hong Kong commercial property under pressure as amid rising bad loans
The city’s banking sector is battling stress from the worst real estate slump since the Asian financial crisis in the late 1990s
[HONG KONG] HSBC Holdings, the largest bank in Hong Kong, warned that the city’s commercial property sector continues to face “downward pressure” after bad loan provisions jumped this year.
The bank posted about US$700 million of charges related to the commercial real estate sector during the first nine months, up from just US$100 million in the year-earlier period. That reflects “higher allowances for new defaulted exposures” and the impact of an over-supply of non-residential properties, the lender said in its results statement on Tuesday (Oct 28).
Despite shrinking its HK CRE loan book by 6.5 per cent since the end of last year, lending continues to show signs of strain. Impaired debt rose to US$6.36 billion in September from US$5.14 billion in June.
More than half of the book is classed as Stage 2, meaning credit risk has risen significantly since the loans were granted, and the provision for expected credit losses increased 21 per cent to US$1.06 billion in the quarter.
While the residential property market has stabilised and is getting stronger, the office sector “continues to be challenging” and the bank expects that to continue through most of next year, HSBC’s chief financial officer Pam Kaur told analysts in a call separately.
The city’s banking sector is battling stress from the worst real estate slump since the Asian financial crisis in the late 1990s. HSBC’s subsidiary, Hang Seng Bank, which it has offered to buy out, has been hard hit by the slump.
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“We continue to closely assess and manage the risk in the portfolio, including through portfolio reviews and stress testing,” the lender said. Vulnerable borrowers are subject to heightened monitoring, it said.
HSBC also said that over-supply in the office market has impacted rental and capital values.
However, there has been a “slight uptick” for take up for Grade A office space, Kaur said on the call.
Overall, HSBC’s Hong Kong business grew profits before tax by 2 per cent to US$7.12 billion in the first nine months of the year, driven by higher client activity across its wealth business. BLOOMBERG
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