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 (RWA). 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 third quarter of 2020, 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 fourth quarter of 2020 become available and the IRC is expected to be volatile in the current circumstances. 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 the economic environment in Hong Kong is still 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 a few more quarters.
Keywords: Asia Pacific, Hong Kong, Banking, Regulatory Capital, CCyB, Macro-Prudential Policy, CET 1, Basel, HKMA
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