HKMA Reduces Countercyclical Capital Buffer for Banks to 1%

In setting the CCyB ratio HKMA considered a series of quantitative indicators and qualitative information including an “indicative buffer guide.” The latest indicative buffer guide, calculated based on the 2019 fourth quarter data, signals a CCyB of 1.75%. The projection based on all available data, however, suggests that the indicative buffer guide would very likely signal a lower CCyB than this when all relevant 2020 quarter 1 data become available. CCyB is part of the Basel III regulatory capital framework. It is a mechanism to build up additional capital during periods of excessive credit growth when risks of system-wide stress are observed to be growing markedly. This capital can then be “released” when the credit cycle turns to absorb losses and enable the banking system to continue lending in the subsequent downturn.

Keywords: Asia Pacific, Hong Kong, Banking, Basel III, CCyB, Regulatory Capital, Banking Capital Rules, CET1, HKMA