Hong Kong lenders consider making bad bank to offload $25b in soured loans

Hang Seng Bank and BoCom reportedly mulled setting up a special vehicle.

The pile of non-performing loans (NPLs) held by Hong Kong lenders has grown so large that some in the industry have discussed the creation of a “bad bank” to soak up the financial hub’s soured debt, reports Bloomberg, citing anonymous sources.

Lenders, including Hang Seng Bank and Bank of Communications, recently engaged with advisory firms and held early-stage discussions about setting up a special vehicle to take their bad debt, according to the sources.

One of the proposed entities is modelled after China’s distressed asset managers and could allow banks to recoup at least a portion of the loans, said the sources.

Bad loans held by Hong Kong’s bank increased to US$25b at the end of March 2025, or 2% of the total and a two-decade high, Fitch Ratings estimates, based on Hong Kong Monetary Authority (HKMA) figures.

Read more from Bloomberg: