HKMA dismisses ‘bad bank’ rumours, saying industry remains healthy

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 logo of Hong Kong Monetary Authority is seen at its office in Central. Photo: Yik Yeung-man
The logo of Hong Kong Monetary Authority is seen at its office in Central. Photo: Yik Yeung-man

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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