HKMA Keeps Countercyclical Capital Buffer Ratio Unchanged at 1%
The Hong Kong Monetary Authority (HKMA) decided to keep the countercyclical capital buffer (CCyB) ratio for Hong Kong unchanged at 1.0%, in accordance with section 3Q(10) of the Banking (Capital) Rules (BCR). The CCyB requirement applicable to a given authorized institution is expressed as a percentage of its common equity tier 1 capital to its total risk-weighted assets. The CCyB requirement of each authorized institution may vary depending on the geographic mix of its private-sector credit exposures and the CCyB applicable in each jurisdiction where it has such exposures. The CCyB is part of the Basel III regulatory capital framework and is being implemented in parallel by Basel Committee member jurisdictions worldwide.
To reach this decision, HKMA reviewed a range of quantitative indicators and qualitative information. This included the “indicative buffer guide” produced by the HKMA Initial Reference Calculator (IRC), which is a metric that takes into account conditions in local credit and property markets. The latest IRC, calculated based on data from the first quarter of 2021, signals a CCyB of 2.5%. The projection based on all available data suggests that the IRC would very likely signal a lower CCyB than this when all relevant data from the second quarter of 2021 become available. However, the setting of the CCyB for Hong Kong always considers a broad range of information in addition to the indicative buffer guide produced by the IRC. HKMA also reviewed a series of “Comprehensive Reference Indicators” and all relevant information available at the time of decision. The information drawn from all these sources suggests that there have been some signs of economic recovery in Hong Kong, but uncertainties about the global pandemic situation have remained. Thus, HKMA considered that it is more appropriate to keep the CCyB unchanged at 1.0% and continue to monitor the situation for a few more quarters.
Keywords: Asia Pacific, Hong Kong, Regulatory Capital, CCyB, Macro-Prudential Policy, CET 1, Basel, HKMA
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