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
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous ArticleSwiss Authorities Amend Liquidity Ordinance, Issue Other Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.