Hong Kong banks have enough buffers against commercial real estate strains

But small and midsize banks are likely to experience greater strain due to their higher exposure to commercial property.

Hong Kong banks’ profits and asset quality should be able to manage higher property-related bad loans and commercial real estate strains, reports S&P Global Ratings.

"Hong Kong banks, particularly the largest ones, have diversified loan portfolios, adequate collateral, and reasonable underwriting standards," said S&P Global Ratings credit analyst Ryan Tsang.

However, small and midsize banks are likely to experience greater strain due to their higher exposure to commercial property loans and, potentially, to smaller and leveraged developers and investors, Tsang warned.

S&P believes that onperforming loans (NPLs) for commercial real estate have not peaked for Hong Kong banks.

Recent results showed that the impaired loan ratio of Hongkong and Shanghai Banking Corp. Ltd. increased to 2.79% at end-2024 from 1.75% at end-2023, as one example, it added.

However, banks' sector-average ratio of credit losses should stay low, at 0.5% of total loans.

“If the ratio did push higher, the banks would have a number of defenses to limit the impact. This includes solid profitability and strong capital levels, S&P said.