HKMA Studies Impact of COVID-19 Lending Support, Furthers Green Agenda
The Hong Kong Monetary Authority (HKMA) published a study that assessed the effects of two major support measures—the release of the Countercyclical Capital Buffer (CCyB) and the SME Financing Guarantee Scheme (SFGS)—on bank lending in Hong Kong. HKMA also announced that the Alliance for Green Commercial Banks onboarded five leading financial institutions as cornerstone members and published a paper on measurement, current practices, and oversight of climate risk issues
The study on bank lending assessed the effects of the release of the CCyB and the SFGS in supporting bank lending during the COVID-19 pandemic. The analyses found strong evidence that the release of CCyB, which enhances the capital headroom and mitigates the capital constraints of banks, helped support continued provision of bank credit to the real economy during the pandemic. However, banks are found to deploy their extra capital headroom from the release of CCyB to support mainly less risky corporate loans, probably reflecting uncertainties over the credit risk of borrowers from hard-hit economic sectors and also the non-sector specific nature of the CCyB. The analyses also showed that the credit flows to hard-hit sectors have been well-supported by the SFGS, which played a complementary role to the CCyB release by incentivizing bank lending more toward these sectors. These findings provide important policy implications. The findings support the view that there may be a need to set a positive neutral rate of CCyB even in periods without excessive credit growth. The findings also show the complementary roles between broad-based (like CCyB) and targeted measures (like SFGS) in enhancing the overall effectiveness of policy measures, echoing the growing view that a combination of different policy measures should be considered to maintain stable flows of credit in times of stress. The complementarity of the micro- and macro-prudential policy measures as well as the interaction with fiscal and monetary policy measures could offer valuable insights on how to maximize the effectiveness of relief measures in response to the next crisis.
HKMA announced that the Alliance for Green Commercial Banks onboarded five leading financial institutions as cornerstone members—Bank of China (Hong Kong), Citi, Crédit Agricole CIB, HSBC, and Standard Chartered—which collectively represent more than USD 7 trillion in assets. The Alliance is a global initiative that aims to bring together pioneers in green finance to catalyze the financial innovation, investment, and leading practices in emerging markets to address climate and environmental risks, The banks will work closely with the International Finance Corporation (IFC) and HKMA to advocate client adaptation to green strategies, promote best practices in green products and services, and unlock new business opportunities that will enable the green transition of economies. The Alliance also launched its first thought leadership paper, titled “Climate Risk: Definitions, Measurement, Current Practices and Regulatory Oversight”, in collaboration with the Hong Kong Institute for Monetary and Financial Research, the research arm of the Hong Kong Academy of Finance. The paper provides an overview of the definitions and measurement of climate risk as well as an exploration of the evolving practices in addressing climate risk, also highlighting the regulatory initiatives related to climate issues.
Keywords: Asia Pacific, Banking, Hong Kong, Basel, CCyB, SME Financing Guarantee Scheme, Credit Risk, Lending, Alliance For Green Commercial Banks, ESG, Climate Change Risk, IFC, HKMA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Hasan Cerhozi
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.