Hong Kong Banks Haven’t Seen ‘Massive’ Capital Outflow, HKMA Says

(Bloomberg) -- Hong Kong’s de facto central bank said the city’s lenders are holding up and are safe and sound amid protracted protests.

The city’s banks are profitable and are maintaining “good asset quality,” Arthur Yuen, deputy chief executive of the Hong Kong Monetary Authority, said in a briefing Friday. There have been no “massive” outflows of capital, he said.

Total loans rose 6.7% in 2019, accelerating from a 4.4% increase in 2018, the HKMA said in an annual review. But deposit growth slowed to 2.9%, from 5% in the prior year. Operating profit climbed 1.8% in the first nine months, compared with 19.4% in 2018. The banks’ CET1 capital ratio improved to 16.3% as of September, the authority said.

The unrest has plunged Hong Kong into its first recession since the global financial crisis. Economists predict year-on-year declines will continue in the first two quarters of 2020, with tourism and retail sectors suffering. Unemployment is rising, with the jobless rate for the food and beverage sector at its highest level in more than eight years.

For now, many observers say Hong Kong’s banking industry can weather the storm. Asset quality issues at small- and medium-sized Hong Kong businesses, among the most impacted by the city’s economic downturn, are unlikely to develop into a crisis, Citigroup Inc. analysts said in a report this month.

For banks like HSBC Holdings Plc and Standard Chartered Plc, analysts expect steady fundamentals in 2020 despite being occasionally dragged into the domestic standoff.

Yuen also rebutted comments by investor Kyle Bass, who earlier this week warned the city was facing a banking crisis, saying that the Hong Kong banking sector is among the “safest in the world” and that some of the comments weren’t based on facts.

Bass, founder of Hayman Capital, said in a Bloomberg TV interview earlier this week the city would suffer a “full-fledged banking crisis” in 2020. Citing a “collapse” in the local economy and high levels of financial leverage, he compared Hong Kong to Iceland and Ireland before those nations’ banking systems imploded during the global financial crisis.

To contact the reporter on this story: Alfred Liu in Hong Kong at aliu226@bloomberg.net

To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Jonas Bergman

©2020 Bloomberg L.P.