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    HKMA Keeps Countercyclical Capital Buffer Unchanged at 1%

    July 07, 2020

    HKMA announced that the countercyclical capital buffer (CCyB) for Hong Kong remains unchanged at 1.0%. The power to implement the CCyB in Hong Kong is provided by the Banking (Capital) Rules, which enable HKMA to announce the CCyB ratio applicable to Hong Kong. HKMA will continue to monitor credit and economic conditions in Hong Kong closely and the CCyB ratio will be reviewed on a quarterly basis or more frequently.

    In setting the CCyB ratio HKMA considered a series of quantitative indicators and qualitative information, including an “indicative buffer guide.” The latest indicative buffer guide, calculated based on the data of first quarter of 2020, signals a CCyB of 2.25%. The projection based on all available data, however, suggests that the indicative buffer guide would very likely signal a higher CCyB than this when all relevant data of second quarter of 2020 become available. The setting of the CCyB for Hong Kong is, however, not a mechanical exercise and HKMA always considers a broad range of information in addition to the indicative buffer guide. In particular, 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 the economic environment in Hong Kong is subject to a high level of uncertainty at the moment. Thus, HKMA considered that it is more appropriate to keep the CCyB unchanged at 1.0% and continue to monitor the situation for the time being.

    CCyB is part of the Basel III regulatory capital framework. It is a mechanism to build up additional capital during periods of excessive credit growth when risks of system-wide stress are observed to be growing markedly. This capital can then be “released” when the credit cycle turns to absorb losses and enable the banking system to continue lending in the subsequent downturn.

     

    Keywords: Asia Pacific, Hong Kong, Banking, CCyB, Banking Capital Rules, Regulatory Capital, Basel, HKMA

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