The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said it had no plans to establish a “bad bank” to absorb troubled debt in the financial system, saying that the local banking sector remained healthy and profitable.
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“Overall, banks in Hong Kong maintain a healthy balance sheet; their credit risk is manageable and provisions are sufficient,” the authority said in a statement on Thursday. “The HKMA has no intention to set up the rumoured ‘bad bank’. We understand that the relevant banks also do not have such a plan.”
The banking regulator saw no need to create a bad bank, as the current provisions for bad debts at banks were already sufficient, an HKMA representative added.
The HKMA’s statement came hours after a Bloomberg report, citing unnamed sources, indicated that Hang Seng Bank, Bank of Communications, and other lenders were in discussions about creating a bad bank.
A bad bank is typically set up to buy non-performing loans and other bad debts to clean up the balance sheets of another bank.
The Bloomberg report, citing Fitch Ratings estimates, said that soured loans in Hong Kong climbed to US$25 billion at the end of March, representing 2 per cent of the total and reaching a two-decade high.
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