July 09, 2019

HKMA decided to maintain the countercyclical capital buffer (CCyB) for banks in Hong Kong at 2.5%, in accordance with the Banking (Capital) Rules (BCR). A review of the indicators of robustness of the system showed that system-wide risks in Hong Kong that are associated with a period of excessive credit growth have not subsided. Housing affordability remains highly stretched and household debt-to-GDP ratio has risen to a new high. Therefore, it is considered appropriate to maintain the CCyB at 2.5% at this juncture, providing additional buffer to shock should systemic risks crystallize.

In reaching the decision to maintain the Hong Kong jurisdictional CCyB rate at 2.5%, HKMA reviewed a range of quantitative indicators and qualitative information. This included the “indicative buffer guide” produced by HKMA’s Initial Reference Calculator (IRC), which is a metric that takes into account conditions in local credit and property markets. By mapping deviations (gaps) of the ratios of credit to GDP and of residential property prices to rentals from their respective long-term trends to the Basel III CCyB range of 0% to 2.5%, the IRC produces a consistent starting point for further analysis. In considering whether there is a build-up of systemic risk, HKMA 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” designed to provide an aggregate view of local conditions, including the build-up of systemic risk (such as measures of bank, household, and corporate leverage; profitability and funding conditions in the banking sector; borrowers’ debt servicing ability; and macroeconomic indicators). 

 

Keywords: Asia Pacific, Hong Kong, Banking, CCyB, Basel III, Banking Capital Rules, Systemic Risk, Macro-Prudential Policy, HKMA

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