Hong Kong, China bank sectors vulnerable to crisis, says Bank of International Settlements
Rising debt and property prices – two major indicators of a crisis – “flashing red”
Hong Kong and China’s banking sectors are among those most vulnerable to a crisis because of rising debts, according to a report from the Bank of International Settlements.
BIS, known as the central bank for central banks, found that two key indicators suggesting a looming banking crisis were present in both economies, it said in quarterly report published on Sunday, which looked at early warning indicators of systemic stress.
“Canada, China and Hong Kong SAR stand out, with both the credit-to-GDP [gross domestic product] gap and the DSR [debt service ratio] flashing red. For Canada and Hong Kong, these signals are reinforced by property price developments,” said the report.
Rising debts both in Hong Kong and the mainland are often flagged as a concern by analysts, though regulators in both jurisdictions have been taking steps to reduce them.
“There are certainly some headwinds facing the Hong Kong banking sector, such as the rising debt to GDP ratio – we are particularly concerned about high property prices – and also the growth in lending by Hong Kong banks to borrowers in mainland China, which have higher credit risks,” said Chung Hong-taik, a banking analyst at ratings agency S&P Global.
