HKMA Report Examines Financial Stability of Banking Sector
HKMA published the semi-annual financial stability report for September 2020. Among other issues, the report assesses the performance of banking sector in the backdrop of ongoing crisis induced by the COVID-19 pandemic. Considering the risk factors and uncertainties identified during the assessment, the report highlights that banks should carefully assess the longer-term impact on the asset quality of their loan portfolios, particularly as the recession may weaken the repayment ability of corporates and households. As part of its Quarterly Bulletin, HKMA also published a feature article describing the latest developments in Hong Kong in the area of green and sustainable banking.
Financial stability report
The financial stability report highlights that retail banks in Hong Kong have recorded thinner profits alongside a slight deterioration in asset quality in the first half of 2020, as the economic downturn deepened amid the global COVID-19 outbreak. Nevertheless, the banking sector has remained resilient, underpinned by strong capital and liquidity positions by international standards. The consolidated total capital ratio of locally incorporated authorized institutions stayed largely unchanged at about 20.7% at the end of June 2020, compared with six months ago. The Tier 1 capital ratio edged up to 18.7%, with 16.6% being contributed by Common Equity Tier 1 (CET1) capital. The average liquidity coverage ratio of category 1 institutions hovered at a similar level of 156.5% in the second quarter of 2020, from 159.9% in the fourth quarter of 2019, which were well above the statutory minimum requirement of 100%. The average Liquidity Maintenance Ratio of category 2 institutions mildly increased to 57.2% in the second quarter of 2020 from 56.4% in the fourth quarter of 2019, also well above the statutory minimum requirement of 25%. The average NSFR of category 1 institutions remained at a high level of 133.1% in the second quarter of 2020, well above the statutory minimum requirement of 100%.
In response to the pandemic, HKMA, together with the banking sector, has taken proactive measures to reduce cash-flow pressure on borrowers. These measures supported stable flows of credit to help the economy ride out this difficult period. Looking ahead, the banking sector in Hong Kong will continue to be challenged by a number of downside risk factors, including uncertainties over the path of global and domestic economic recovery amid the COVID-19 pandemic and rising U.S.-China tensions.
Developments in green and sustainable banking
The article on the developments in green and sustainable banking points out that HKMA is pushing ahead with its initiatives to address climate-related issues, support sustainable finance, and promote green and sustainable banking. Over the past year, a common assessment framework has been developed to measure the “greenness baseline” of individual authorized institutions; the first round of self-assessment has been completed; and a white paper has been published on green and sustainable banking to outline our initial thinking on supervisory expectations. The next step is to develop supervisory requirements on climate risk management for authorized institutions, regarding which HKMA plans to consult the industry in the first half of 2021. Apart from developing supervisory requirements, HKMA is also exploring ways to facilitate authorized institutions' management of climate-related risks and growing green businesses. For instance, HKMA will invite authorized institutions to participate in a pilot climate stress testing exercise to assess the climate resilience of the sector. Consultancy studies will also be conducted to review and address potential obstacles to the development of green and sustainable banking in Hong Kong. The goals of these initiatives are to build climate resilience within the banking system as well as to raise authorized institutions’ awareness of climate risks and broader sustainability issues.
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Related Articles
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
IOSCO Welcomes Work on Sustainability-Related Corporate Reporting
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
BoE Allows One-Day Delay in Statistical Data Submissions by Banks
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
ACPR Amends Reporting Module Timelines Under EBA Framework 3.2
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
APRA to Modernize Prudential Architecture, Reduces Liquidity Facility
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.
