HKMA Maintains CCyB Rate, Studies Impact of ESG on Sovereign Credit
The Hong Kong Monetary Authority (HKMA) announced that the applicable jurisdictional countercyclical capital buffer (CCyB) ratio for Hong Kong remains unchanged at 1%. Although the latest indicative buffer guide, calculated based on data from the first quarter of 2022, signals a CCyB of 0%, uncertainties about global and domestic economic environment have remained high. Thus, HKMA decided to retain the CCyB at 1%. HKMA also published a study that aims to examine the effect of economy-wide environmental, social, and governance (ESG) performance on sovereign credit risk.
The study examines the impact of ESG factors on sovereign credit risk over time and across economies. It addressed four key questions covering impact of ESG performance on reduction of sovereign credit risk, impact of faster ESG debt market development on reduction of sovereign credit risk, inclusion of ESG factors in investment decision making by investors, and determination on whether the ESG effect on sovereign credit risk is homogeneous across advanced economies and emerging market economies. This assessment is expected to provide important insights for ESG-related policymaking in the medium to long term.
The results of the study show that investors have generally factored in ESG performance and the development of the ESG debt market when pricing sovereign credit risk in recent years, and that the impact of ESG is significant in both advanced economies and emerging market economies. However, the emerging market economies’ sovereign credit risk appeared to be less sensitive to the ESG debt market size due to the still-underdeveloped ESG markets. The study also shows some differences in the sensitivity of sovereign credit risk to the individual E, S, and G factors, depending on the stage of economic development. The study found that sovereign credit risk of the advanced economies is insensitive to their governance performance while that of the emerging market economies is insensitive to their environmental performance. The findings suggest that policymakers should continue to support ESG-related developments and foster stronger international cooperation to improve the environmental performance of emerging market economies—for example, technology transfer via foreign direct investment to mitigate carbon emission.
Keywords: Asia Pacific, Hong Kong, Banking, Basel, Regulatory Capital, CCyB, ESG, Climate Change Risk, Low Carbon Economy, Sovereign Credit Risk, HKMA
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.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
BSP Updates Address Granular and Other Data Collections for BanksRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.