HKMA Maintains CCyB at 1%, Issues Other Updates for Banks
The Hong Kong Monetary Authority (HKMA) announced that the applicable jurisdictional countercyclical capital buffer (CCyB) ratio for Hong Kong remains unchanged at 1.0%. Additionally, HKMA revised Supervisory Policy Manual (SPM) on the implementation approach of CCyB and module IC-7 on the sharing and use of commercial credit data through a credit reference agency, published circulars on credit risk management for personal lending business, and set out implementing arrangements to lower the statutory limits of the effective rates of interests as stipulated in the Money Lenders Ordinance (Cap. 163). In another update, HKMA welcomed the commencement of the additional payment arrangement for property transactions in respect of residential mortgage refinancing.
Revised SPM Implementation Approach of CCyB. The module provides an overview of the CCyB framework in Hong Kong. The purpose of the revised SPM is to explain the HKMA approach toward implementing the Basel III Countercyclical Capital Buffer as part of the capital adequacy framework for authorized institutions incorporated in Hong Kong. HKMA has, by the Banking (Capital) (Amendment) Rules 2023, amended some provisions to modify the condition for setting the applicable jurisdictional CCyB ratio.
Revised SPM Module IC-7. HKMA will issue, by notice in the Gazette, on December 30, 2022, the revised SPM module IC-7 as a statutory guideline under section 16(10) of the Banking Ordinance. Changes in the revised SPM module IC-7 are mainly to set out the regulatory expectations of HKMA for authorized institutions to access the Commercial Credit Reference Agency (CCRA) database via the Commercial Data Interchange (CDI). Section 5 of the revised SPM module IC-7 provides guidance on safeguards for authorized institutions to protect information security of commercial credit data disclosed to, or obtained from, a CCRA regardless of whether access is made through CDI or designated terminals. For other alternative credit data obtained via CDI, authorized institutions are encouraged to adopt reasonable procedures to ensure that such alternative data are properly safeguarded, with regard to the confidentiality, accuracy, relevance, and proper utilization of the information. The revised module will come in effect from December 30, 2022.
Credit Risk Management for Personal Lending Business. HKMA published a circular that streamlines arrangements for launching products under the “New Personal-Lending Portfolio” (NPP) framework. The streamlined arrangements aim to facilitate authorized institutions to accelerate the adoption of advanced data analytics in their credit underwriting and product design. In its review of the NPP proposals, HKMA found that authorized institutions are generally prudent and adhere to the HKMA guidelines when developing the NPP business. Therefore, with immediate effect, authorized institutions are no longer required to discuss with HKMA before the launch of a product under the NPP framework. Furthermore, authorized institutions that have rolled out NPP products are expected to notify the HKMA on an ex-post basis and report relevant data to the HKMA regularly based on a template that will be provided separately. The HKMA will continue to monitor credit risk management practices of authorized institutions for NPP business through day-to-day supervision.
Circular on revised interest rate limits. The Circular states that authorized institutions should adopt the revised interest rate limits under the Money Lenders Ordinance (MLO), when complying with section 12.3 of the Code of Banking Practice (CoBP) by December 30, 2022. The revision to the MLO’s interest rate limits referenced by CoBP is a significant change, which the authorized institutions should clearly explain to customers on the revision in good time to facilitate customers’ planning of borrowing decisions and minimize risk of any dispute that may arise. In addition, HKMA expects subsidiaries of authorized institutions to abide by the customer communication requirements as laid out in Annex B of this Circular.
Keywords: Asia Pacific, Hong Kong, Banking, CCyB, Basel, Regulatory Capital, Supervisory Policy Manual, CCRA, CDI, Credit Risk, Personal Lending Portfolio, Lending, Interest Rate Risk, Residential Mortgage, Mortgage Lending, HKMA
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