Hong Kong banks face coronavirus toll on asset quality, loan growth

The Bank of East Asia

25/02/2020 23:00

By Sumeet Chatterjee
    HONG KONG, Feb 26 (Reuters) - Hong Kong's banks face at
least two quarters of worsening asset quality and slowing loan
growth as the coronavirus outbreak hits trade and consumer
banking, analysts and bankers said.
    Lenders in the Asian financial hub, including HSBC  HSBA.L 
and Standard Chartered  STAN.L , are seeing a drop in demand for
mortgages, credit card usage and corporate loans, bankers with
knowledge of the matter said.
    Hong Kong banks have Asia's largest exposure to China, which
accounted for 29.4% of banking system assets in the first half
of last year, credit ratings agency Fitch says.  
    Some of the banks have already started stress testing select
parts of their China and Hong Kong businesses as fears grow of a
pandemic of the flu-like virus that originated in China late
last year.
    "Some of the companies in Hong Kong were already hanging
from a thread after months of civil unrest and now the virus has
come on top of that," said Sonny Hsu, senior credit officer for
financial institutions group at Moody's Investors Service.
    "The combined effect will be much more. This time, it will
be more of a problem loan and credit cost issue," Hsu said.
    An extended disruption to economic activities would weaken
the banks' asset quality and profitability, and will be a credit
negative, the rating agency said. 
    "(The) first quarter is usually a busy month for us as
clients work on their plans for the year ahead. This year, the
trade finance volume is down 15% to 30% in China and Hong Kong,"
a senior banker at a large global bank in Hong Kong said.
    
    ASSET QUALITY 
    The biggest impact on asset quality in Hong Kong will come
from retail, hotels and property as the city's economy, already
in recession after months of anti-government protests, faces
increased headwinds due to the coronavirus, the banker added.
    Some banks are also concerned about the likely push from
Chinese authorities to extend loan repayment periods as well as
make cheaper credit available, the bankers said.
    "We are not thinking about origination of new business much 
- (the) bulk of work is focussed on minimizing the hit to asset
quality. It won't be business as usual for the next two quarters
at least," a retail banker with a global bank said. 
    Unemployment in Hong Kong reached its highest in three years
in January at 3.4%, while bankruptcy petitions submitted rose to
703 last month up from 665 a year-ago, data showed.  urn:newsml:reuters.com:*:nAZN02CFLJ
    HSBC, which made 40% of its revenue from China and Hong Kong
in 2019, said last week it could take up to $600 million in
additional provisions against loan losses if the coronavirus
outbreak persists into the second half.  urn:newsml:reuters.com:*:nS8N26N019
    HSBC declined further comment.
    Hong Kong-based Bank of East Asia (BEA)  0023.HK  said last
Wednesday it expected a deterioration of 10-20 basis points in
credit cost, the percentage of provisioning for bad loans out of
total lending, for its local business in 2020 due to the
economic downturn. BEA declined to comment further.
    StanChart, which also makes the bulk of its profits in Asia,
is expected to echo these comments when it reports on Thursday.
It declined to comment ahead of its results.   

 (Reporting by Sumeet Chatterjee;
Editing by Alexander Smith)
 ((sumeet.chatterjee@thomsonreuters.com; +852-2847 2094;))