Rise in Bad Debts on Hong Kong Commercial Property: A Manageable Concern, Says HKMA CEO

Growth in unpaid loans on Hong Kong's business real estate is worrisome, says HKMA's Chief Executive

Eddie Yue assures that the surge is 'not distressing' as the banking structure is sturdy enough to manage the rise.

The Hong Kong Monetary Authority (HKMA) is keeping a close eye on the rise of non-performing loans in the city's business property market. However, the head of the authority is confident that the banking system is sturdy enough to manage the issue without any trouble.

"There is some worry, but it's not distressing since we can still handle the situation," Eddie Yue Wai-man, the CEO of HKMA, mentioned in a discussion last week.

The local banking industry has witnessed a surge in the overall ratio of bad debt, escalating to 1.89 per cent in June from roughly 1.5 per cent at last year's close. The primary cause for this hike is an increase in unpaid loans within the commercial property market, encompassing mainland China, as indicated by Yue.

"The prolonged Covid pandemic of three years severely impacted numerous industry sectors, with several businesses continuing to permit their staff to operate remotely," he stated. "This has resulted in a reduced need for office spaces. The elevated interest rates from 2022 onwards have also placed a significant strain on numerous developers, especially those smaller in scale."

The availability of class A office spaces surged to 14% in June, marking its peak since 2004, as per CBRE. Numerous international banks, legal companies, and multinational firms have reduced their local operations and trimmed expenses due to a continuous business slowdown, even post the Covid-19 pandemic.