“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 so-called bad bank.
A bank for bad loans is typically set up to take over the non-performing loans, debt and other distressed assets 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.
