These factors are weighing on Hong Kong banks' credit profiles

Rising private sector debt is one key risk.

Moody's Investors Service says material imbalances in Hong Kong's economy, including accommodative monetary conditions, rising corporate and household debt, and inflated property prices are weighing on banks' credit profiles.

These factors underpin Moody's negative outlook for the Hong Kong banking system over the next 12-18 months.

"Despite a pick-up in economic growth since the second half of 2016, modest productivity increases and the prospect of higher interest rates will weigh on Hong Kong's medium term economic growth," says Sherry Zhang, a Moody's Analyst.

"Very accommodative monetary conditions have spurred property price increases and rising private sector leverage, which pose latent risks to the system. Meanwhile, the banks' growing mainland exposures also pose risks to their credit profiles," adds Zhang.