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Hong Kong banks protected from EU crisis

Wednesday 23 November 2011 – by [email protected]

Hong Kong’s banks are well buffered from the European debt crisis thanks to their wide pool of overseas funding, according to a new report card by Fitch.

The credit rating agency concluded on Tuesday that banks’ vulnerability to troubled EU economies is “modest” with exposures to Greece, Ireland, Italy, Portugal and Spain amounting to just 4.2 per cent of consolidated equity.

Exposure to Western European banks overall is estimated at a “more material” 9 per cent of Hong Kong banking assets or 88 per cent of system wide equity at the end of June.

However the banks in the Chinese special administrative region have reduced their total Western European exposures by 43 per cent since the end of 2007, Fitch said.

In comparison, the rating agency noted that funding from banks in the US, UK, Japan, China and Singapore together make up 17 per cent of system wide assets. It concludes that it is unlikely that European banks will withdraw funding from the Asian jurisdiction.

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“Hong Kong banks remain vulnerable to general aversion to bank risk and waning investor confidence in global growth in general and China in particular”, said Sabine Bauer, director of Fitch’s financial institutions team.

“Core revenues and capitalisation should however continue to hold up well and Fitch anticipates that Hong Kong banks would eventually slow down their expansion to China if liquidity were to tighten drastically.”

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