Struggling Chinese firms to lift Hong Kong banks' classified loan ratio to 0.75% by 2019

The number of defaults quadrupled to hit a record $17.68b in 2018.

The growing number of weakening Chinese corporates and SMEs poses a threat to the asset quality of Hong Kong banks who should brace as their classified-loan ratio is set to rise to 0.75% by end-2019 from 0.6% in Q3 2018, according to Fitch Ratings. 

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The protracted US-China trade dispute and the slowdown in Mainland economy has dealt a heavy blow to companies trying to repay their debt as defaults quadrupled from last year to hit a record $17.68b (CNY119.6b) in 2018, data from Bloomberg show. 

Banks in Hong Kong have considerable exposure to China with the headline figure set to increase by another 10% in 2019 amidst steady cross-border activity, Sabine Bauer, senior director for financial institutions said.

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Lenders, however, remain in a strong position to weather the slight bump in classified loans as steady earnings retention support a slight increase in capital ratios, noted Bauer.

“Banks' overall loss absorption buffers - which in part reflect high regulatory requirements - would support their resilience in the event of a more significant economic shock,” she added.