Asia Stocks to Watch: Hong Kong banks slapped with credit warning



By V. Phani Kumar
, MarketWatch

HONG KONG (MarketWatch) — Shares of Hong Kong banks fell Tuesday after a city’s financial management pronounced it will step adult commitment opposite what it described as “unsustainable” credit growth, and as a investigate residence downgraded some lenders, citing a “potential liquidity squeeze.”

The Hong Kong Monetary Authority (HKMA) — a city’s de facto executive bank — on Monday expelled a round to banks, observant it was “necessary” for a regulator to step adult monitoring of a lenders’ business skeleton and appropriation strategies for a rest of this year, as credit was surging during a many faster rate than a expansion in deposits.

Bearish predict on rising rates

Interest rates simulate mercantile growth, inflationary fears and financier sentiment, according to Rydex account manager Kurt Barneby, who says rates are expected to go aloft and so stays bearish in his bond-market outlook. Jonathan Burton reports.

The lending binge, that caused a internal banking industry’s Hong Kong dollar loan-to-deposit (LTD) ratio to balloon to 78% from 71% over 2010, continued in a initial dual months of 2011 as well, boosting a attention LTD ratio serve to 81%.

“It is transparent that a same fast gait of credit expansion is unsustainable,” HKMA Chief Executive Norman Chan wrote to a city’s lenders in a circular.

Watching credit ‘excesses’

Chan pronounced that sum loans done by Hong Kong lenders increasing 29%, or 940 billion Hong Kong dollars ($121 billion) in 2010, driven by a detonate of credit to a skill zone and mainland Chinese business that are not banks.

The stretched loan book, including HK$258 billion of loans done to a skill sector, noted a 19% boost over 2010. Exposure to mainland business — including state-owned banks, Chinese firms listed in Hong Kong or their subsidiaries, and firms tranquil by provincial or metropolitan governments on a mainland — jumped during an even faster shave of 47%, totaling HK$440 billion.

The gait of lending eased rather in a initial dual months of 2011, though still rose during a fast 26% in annualized terms.

Well before U.S. seductiveness rates move, we predict rising appropriation costs and loan-repricing ensuing in a contraction in debt credit in 2012-13.

– Barclays Capital

Chan pronounced a HKMA’s on-site hearing of banks hasn’t nonetheless suggested any dilution of normal or advantageous underwriting standards by a city’s lenders, and that many loans done to mainland clients have been corroborated by material or by guarantees from mainland banks.

But a regulator stressed a need for larger vigilance.

“Should a stream trend continue for many longer, it will fundamentally lead to vigour on funding, liquidity and concentration, as good as concerns about probable obscure of credit-underwriting standards,” Chan wrote in a circular.

Some analysts welcomed a HKMA’s devise to step adult commitment on lending by a city’s banks.

“We have been endangered about a fast leveraging adult of a Hong Kong banking system, and as such, it is enlivening to see a HKMA holding certain stairs to cold stream excesses,” UBS analysts Stephen Andrews and Steve Ho wrote in a news expelled Tuesday.

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