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Straits Times
17-07-2025
- Business
- Straits Times
Hong Kong's $32 billion pile of bad debt spurs talks to form ‘bad bank'
Hang Seng's credit impaired gross loans surged to HK$19.8 billion (S$3.2 billion) at the end of 2024, up from HK$1.08 billion a year ago. HONG KONG – The pile of non-performing loans at Hong Kong lenders has grown so large that some in the industry have discussed the creation of a 'bad bank' to soak up the financial hub's soured debt. The talks between some of the city's biggest banks, described by people familiar with the matter, have been preliminary in nature and lenders would face significant hurdles before putting the idea into action. Yet the discussions underline growing concern among industry insiders over a bad loan buildup. Soured loans increased to US$25 billion (S$32 billion) at the end of March, or 2 per cent of the total and a two-decade high, Fitch Ratings estimates, based on Hong Kong Monetary Authority figures. That may climb to 2.3 per cent by year end, the biggest jump in Asia Pacific, and loan quality is likely to deteriorate further through 2026, according to the ratings company. Hong Kong's banks are coming under increasing pressure to offload loans backed by real estate assets after rolling them over or amending the original terms in the past to avoid writedowns. The delay by some banks in recognizing impairments has helped mask even weaker underlying asset quality. 'We should be seeing more distressed sales – it's a little alarming that we're not,' said Jason Bedford, a former UBS Group analyst who made a name for predicting the troubles that hit Chinese regional banks in 2019. Lenders including Hang Seng Bank and Bank of Communications recently engaged with advisory firms and held early-stage discussions about setting up a special vehicle to take their bad debt, people familiar with the matter said. Top stories Swipe. Select. Stay informed. Singapore HSA launches anti-vaping checks near 5 institutes of higher learning Singapore Over 600 Telegram groups in Singapore selling, advertising vapes removed by HSA Business Singapore key exports surprise with 13% rebound in June amid tariff uncertainty Business Market versus mission: What will Income Insurance choose? Life First look at the new Singapore Oceanarium at Resorts World Sentosa Opinion AI and education: We need to know where this sudden marriage is heading Singapore Coffee Meets Bagel's Singpass check: Why I'll swipe right on that Singapore Jail for man who fatally hit his daughter, 2, while driving van without licence One of the proposed entities is modelled after China's distressed asset managers and could allow banks to recoup at least a portion of the loans, said the people. It's unclear how much traction the proposal has received among banks and Hong Kong regulators. Hong Kong also narrowly averted a deeper crisis in June as banks after tense negotiations agreed to a record US$11 billion refinancing for troubled developer New World Development. Political and economic turmoil over the past few years have shook the city's real estate sector, where office vacancies are surging to a record. 'There's too much supply of commercial real estate, particularly office space, hence we continue to see Hong Kong banks' asset quality deterioration stemming from the sector this year,' said Savio Fan, an analyst at Fitch. Still, the Hong Kong Monetary Authority (HKMA) said the banking sector's overall asset quality 'is manageable and provisions remain sufficient' even as its bad loan ratio edged up. The total capital ratio of locally-incorporated banks stood at 24.2 per cent at the end of March 2025, while the average liquidity coverage ratio of the major banks was 182.5 per cent, far above above international minimum requirements, according to the HKMA. While Fitch predicts loan quality will continue to deteriorate, it has said the situation is manageable given that lenders have large buffers. Hang Seng's credit impaired gross loans surged to HK$19.8 billion (S$3.2 billion) at the end of 2024, up from HK$1.08 billion a year ago. Impairments at Dah Sing Banking Group, whose unit was downgraded by Moody's Investors Service in June, more than doubled to HK$1.79 billion in 2024. The city's largest bank, HSBC Holdings, had US$33.2 billion of exposure to Hong Kong commercial real estate at December 2024, of which about US$4.6 billion was credit impaired. While the valuation of commercial real estate in Hong Kong has likely fallen more than 50 per cent in the last few years, they haven't 'really declined a lot' on property companies and bank books since there have been few transactions, according to Cusson Leung, chief investment officer at KGI Asia. 'It's a big dilemma for both the developers and the banks,' said Mr Leung. 'If a bank forces the sale of a commercial property at a 50 per cent discount, it would have implications on the valuations of other buildings and collateral and, under the current poor market sentiment toward commercial real state, this could have undesirable consequences.' In the first half of 2025, HK$2.9 billion, or 20 per cent, out of a total of HK$14.8 billion in transactions of mortgage sales and assets were sold at a capital loss, according to data from Colliers International. The HKMA said it monitors that banks have 'appropriate and timely loan classification and provisioning at all times' and subjects them to independent validation by external auditors. The lenders are now at risk of taking a hit on their lending income as well as the Hong Kong interbank offered rate, a benchmark for loan rates, has collapsed. One-month Hibor has slumped to 1.1 per cent from 4.6 per cent end last year, according to Bloomberg-compiled data. Corporate lending has also been been weak. Mr Fan at Fitch said he 'definitely sees some pressure' on net interest margins due to the drop in Hibor but at the same time, fee income looks 'quite strong' from wealth management. For Mr Bedford, the situation for Hong Kong lenders is different from the troubled regional Chinese banks, which were using special-purpose vehicles to intentionally hide bad loans. Financial disclosures in Hong Kong have always been very 'market-based,' he said. Ultimately, though, banks are trying to maintain the mark-to-market value of their property so they don't take huge impairment losses, he said, adding that there is a 'structural incentive' not to do anything that will create an immediate change to valuations. 'Hong Kong banks are going through a very textbook credit cycle,' said Mr Bedford. 'NPLs are going up, loan growth stalls, banks start to increase risk scoring standards and the economy slows.' BLOOMBERG
Business Times
17-07-2025
- Business
- Business Times
Hong Kong's US$25 billion pile of soured debt spurs talks to form ‘bad bank'
[HONG KONG] The pile of non-performing loans (NPLs) at Hong Kong lenders has grown so large that some in the industry have discussed the creation of a 'bad bank' to soak up the financial hub's soured debt. The talks between some of the city's biggest banks, described by sources familiar with the matter, have been preliminary in nature and lenders would face significant hurdles before putting the idea into action. Yet the discussions underline growing concern among industry insiders over a bad loan buildup. Soured loans increased to US$25 billion at the end of March, or 2 per cent of the total and a two-decade high, Fitch Ratings estimates, based on Hong Kong Monetary Authority (HKMA) figures. That may climb to 2.3 per cent by year end, the biggest jump in Asia Pacific, and loan quality is likely to deteriorate further to 2026, according to the ratings company. Hong Kong's banks are coming under increasing pressure to offload loans backed by real estate assets after rolling them over or amending the original terms in the past to avoid writedowns. The delay by some banks in recognising impairments has helped mask even weaker underlying asset quality. 'We should be seeing more distressed sales – it's a little alarming that we are not,' said Jason Bedford, a former UBS Group analyst who made a name for predicting the troubles that hit Chinese regional banks in 2019. Lenders, including Hang Seng Bank and Bank of Communications, recently engaged with advisory firms and held early-stage discussions about setting up a special vehicle to take their bad debt, sources familiar with the matter said, asking not to be named discussing private information. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up One of the proposed entities is modelled after China's distressed asset managers and could allow banks to recoup at least a portion of the loans, said the sources, asking not to be identified as the matter is private. It's unclear how much traction the proposal has received among banks and Hong Kong regulators. Hang Seng and Bank of Communications were not immediately available to comment. Hong Kong also narrowly averted a deeper crisis last month as banks after tense negotiations, agreed to a record US$11 billion refinancing for troubled developer New World Development. Political and economic turmoil over the past few years have shook the city's real estate sector, where office vacancies are surging to a record. 'There's too much supply of commercial real estate, particularly office space, hence we continue to see Hong Kong banks' asset quality deterioration stemming from the sector this year,' said Savio Fan, an analyst at Fitch. Still, the HKMA said the banking sector's overall asset quality 'is manageable and provisions remain sufficient' even as its bad loan ratio edged up. The total capital ratio of locally-incorporated banks stood at 24.2 per cent at the end of March 2025, while the average liquidity coverage ratio of the major banks was 182.5 per cent, far above international minimum requirements, according to the HKMA. While Fitch predicts loan quality will continue to deteriorate, it has said the situation is manageable given that lenders have large buffers. Citigroup analysts this week upgraded Hang Seng to 'buy', saying credit costs from 2025 to 2027 are largely factored in, while dividends look sustainable and on the outlook for share buybacks. The US bank also has a buy rating on Bank of China (HK). Hang Seng's credit impaired gross loans surged to HK$19.8 billion at the end of last year, up from HK$1.08 billion at the end of 2023. Impairments at Dah Sing Banking Group, whose unit was downgraded by Moody's Investors Service in June, more than doubled to HK$1.79 billion in 2024. The city's largest bank, HSBC Holdings, had US$33.2 billion of exposure to Hong Kong commercial real estate at December 2024, of which about US$4.6 billion was credit impaired. While the valuation of commercial real estate in Hong Kong has likely fallen more than 50 per cent in the last few years, they have not 'really declined a lot' on property companies and bank books since there have been few transactions, according to Cusson Leung, chief investment officer at KGI Asia. 'It's a big dilemma for both the developers and the banks,' said Leung. 'If a bank forces the sale of a commercial property at a 50 per cent discount, it would have implications on the valuations of other buildings and collateral and, under the current poor market sentiment towards commercial real state, this could have undesirable consequences.' In the first half of 2025, HK$2.9 billion, or 20 per cent, out of a total of HK$14.8 billion in transactions of mortgage sales and assets were sold at a capital loss, according to data from Colliers International. The HKMA said it monitors that banks have 'appropriate and timely loan classification and provisioning at all times' and subjects them to independent validation by external auditors. The lenders are now at risk of taking a hit on their lending income as well as the Hong Kong interbank offered rate, a benchmark for loan rates, has collapsed. One-month Hibor has slumped to 1.1 per cent from 4.6 per cent end last year, according to Bloomberg-compiled data. Corporate lending has also been weak. Fan at Fitch said he 'definitely sees some pressure' on net interest margins due to the drop in Hibor but at the same time, fee income looks 'quite strong' from wealth management. For Bedford, the situation for Hong Kong lenders is different from the troubled regional Chinese banks, which were using special-purpose vehicles to intentionally hide bad loans. Financial disclosures in Hong Kong have always been very 'market-based', he said. Ultimately, though, banks are trying to maintain the mark-to-market value of their property so they do not take huge impairment losses, he said, adding that there is a 'structural incentive' not to do anything that will create an immediate change to valuations. 'Hong Kong banks are going through a very textbook credit cycle,' said Bedford. 'NPLs are going up, loan growth stalls, banks start to increase risk scoring standards and the economy slows.' BLOOMBERG
News.com.au
29-05-2025
- General
- News.com.au
Australian singer Tones and I fined over dog attack that saw 17-year-old cavoodle torn apart
Australian pop star Tones and I has been in court after her American Bulldog attacked and killed a 17-year-old cavoodle. The incident took place while the singer, real name Toni Elizabeth Watson, was in the shower at her $7 million home in the Mornington Peninsula in November last year. As a result of the attack, she was forced to have her dog, named Boss, euthanised and was fined by the local council, reported Herald Sun. Watson's neighbour and owner of the elderly dog that was killed, Wayne Schultz, said he was on a walk with his two cavoodles when he spotted one of Watson's other dogs, a labrador named Charlie, unable to get back into the singer's home because the gate was shut. Watson's friend Tahlia arrived at the star's home and Schultz called over to let her know Charlie, the dog, was outside. Tahlia opened the gate to retrieve the Labrador and inadvertently let the American Bulldog escape, and launch the attack by biting down hard on the elderly dog's neck. It eventually took three people, Schultz, a passer-by who spotted the commotion and Watson's own husband, Jason Bedford to stop the attack. The elderly dog died while still held in the jaws of Watson's American Bulldog. The attack also led to Schultz sustaining an eye injury and a bite wound on his knee, while the passer-by who helped stop the attack received a fractured hand. . 'The victim's family are devastated by the loss of their family pet and the manner in which the dog died in front of them,' Mornington Peninsula Shire prosecutor Colin McLean told the Dromana Magistrates' Court on Thursday. It was later revealed in court that the pop singer had visited Schultz's home in the hours after the attack where they both cried before she offered to pay for any funeral-related costs, which the couple declined. Watson did not show up in court due to being in the US to record her forthcoming album. However, her husband did attend. As a result of the attack, Watson was ordered to pay a $3000 fine for failing to securely confine two dogs and for not re-registering the American bulldog. She also was ordered to pay the council's costs. It was a civil matter and the singer is not facing criminal charges.
Yahoo
13-02-2025
- Business
- Yahoo
Exclusive-China's record mergers in $8 trillion small banking sector raise future risks
(Reuters) -China oversaw its largest-ever wave of rural bank mergers last year, a Reuters review of official data showed, but analysts say Beijing's efforts to tackle risks in the small banking sector could end up creating more problems down the road. Many of the roughly 4,000 small Chinese banks are backed by indebted provincial governments and largely funded via short-term money market and interbank borrowings, potentially jeopardising financial stability in the event a few of them fail. The move comes at a time when many of these smaller banks have been hit hard by slowing loan growth and a spike in bad loans amid a property sector crisis and a prolonged downturn in the world's no. 2 economy. At least 290 rural Chinese banks and rural cooperatives were merged into larger regional lenders in 2024, according to Reuters calculation of regulatory and company filings over the past 12 months. The scale of the mergers, which have not been reported previously, underscore the depth of the problem in a crucial corner of China's financial sector. It's also the most sweeping consolidation since China's small rural commercial banks were transformed in early 2000 from socialist-style, rural cooperatives to serve farmers and small enterprises overlooked by major state banks. China's rural or small banking sector has about 3,700 firms with a combined 57 trillion yuan ($7.8 trillion) in assets as of the end of June last year, roughly twice the size of Australia's banking sector and one-third the size of the United States. "After years of clean-up the banking system is in relatively good health despite the weakening economic backdrop," said Jason Bedford, a former Asia analyst with Bridgewater and UBS, known for his in-depth research on the Chinese banking sector. However, often these mergers simply create "larger troubled banks" by combining insolvent institutions, said Bedford. China's banking regulator, the National Financial Regulatory Authority, did not respond to Reuters request for comment. SOARING BAD LOANS Over the past decade, many small banks started aggressively lending to property developers and local government financing vehicles. That practice made them vulnerable to the post-COVID economic downturn, the property market upheaval, and the weakening financials of the indebted local governments. Rural commercial banks' bad loan ratio hit 3.04% in the third quarter of last year, nearly double the overall banking sector's 1.56%, show the latest official data. Analysts say the financial health of many small lenders is in a much worse state. In one of the most elaborate merger exercises last year, the government in northeast China's Liaoning province in September 2023 set up Liaoning Rural Commercial Bank with 20.8 billion yuan in registered capital. Liaoning Rural Commercial Bank then absorbed 36 local small rural lenders in June last year. Many of the absorbed lenders were struggling with soaring bad loans, the Reuters review of filings showed. Liaoning Dengta Rural Commercial Bank, one of the 36 institutions, reported a 21.54% bad loan ratio at the end of 2021, compared with a sector average of 1.73% at that time, the bank's latest available disclosures showed. Liaoning Rural Commercial Bank's balance sheet has not been made public yet. The lender did not respond to a request for comment. In a more recent consolidation move, Lanzhou Bank, based in northwestern Gansu province, received regulatory approval to acquire two rural banks, the country's banking sector regulator said in statement in December. As part of those acquisitions, financial details of which were not made public, the two banks' assets will be transferred to Lanzhou Bank, which had 453 billion yuan in assets and 1.73% bad loan ratio as of end-2023, its annual report showed. China's mainland banking index is up roughly 10% this year, having gained nearly 40% last year buoyed by hopes of recapitalisation of big lenders. 'CASH MACHINES' The small banks merger drive is part of reforms launched by Chinese authorities in 2022 to overhaul the rural banking sector and clean up struggling smaller lenders, after a series of scandals that in some cases saw depositors losing money and holding rare public protests. Ten other small banks in the Liaoning province are set to be merged into Liaoshen Bank, established in June 2021 to absorb 12 smaller regional lenders, according to official disclosures seen by Reuters. Highlighting the risk of the merger drive creating bigger troubled banks, Liaoshen Bank inherited large amount of soured assets from the acquisition of two smaller banks, resulting in its bad loan ratio hitting 4.67% in 2022 and 4.53% in 2023. That's substantially higher than the 1.75% average among city commercial banks. "The two original banks had insufficient quality assets, large high-interest liabilities… unbalanced business structure, and weak operational management," Liaoshen Bank said in its 2022 annual report, adding it's still not a 'normal bank.' Liaoshen Bank did not respond to a request for comment. Some rural institutions had become shareholders' "cash machines" and had strayed from their mission of supporting the agricultural sector and small businesses, the central bank said in a report released in December 2023. "The problem is that there are so many small regional banks that the banking regulator clearly doesn't have the capacity to monitor them all," said Christopher Beddor, deputy China research director at Gavekal Dragonomics. These consolidations will create fewer, larger institutions that regulators can supervise more effectively, he said, but the strategy would not resolve issues like bad assets and "plenty of problems" will remain.
Zawya
12-02-2025
- Business
- Zawya
China's record mergers in $8trln small banking sector raises future risks
China oversaw its largest-ever wave of rural bank mergers last year, a Reuters review of official data showed, but analysts say Beijing's efforts to tackle risks in the small banking sector could end up creating more problems down the road. Many of the roughly 4,000 small Chinese banks are backed by indebted provincial governments and largely funded via short-term money market and interbank borrowings, potentially jeopardising financial stability in the event a few of them fail. The move comes at a time when many of these smaller banks have been hit hard by slowing loan growth and a spike in bad loans amid a property sector crisis and a prolonged downturn in the world's no. 2 economy. At least 290 rural Chinese banks and rural cooperatives were merged into larger regional lenders in 2024, according to Reuters calculation of regulatory and company filings over the past 12 months. The scale of the mergers, which have not been reported previously, underscores the depth of the problem in a crucial corner of China's financial sector. It's also the most sweeping consolidation since China's small rural commercial banks were transformed in early 2000 from socialist-style, rural cooperatives to serve farmers and small enterprises overlooked by major state banks. China's rural or small banking sector has about 3,700 firms with a combined 57 trillion yuan ($7.8 trillion) in assets as of the end of June last year, roughly twice the size of Australia's banking sector and one-third the size of the United States. "After years of clean-up the banking system is in relatively good health despite the weakening economic backdrop," said Jason Bedford, a former Asia analyst with Bridgewater and UBS, known for his in-depth research on the Chinese banking sector. However, often these mergers simply create "larger troubled banks" by combining insolvent institutions, said Bedford. China's banking regulator, the National Financial Regulatory Authority, did not respond to Reuters request for comment. SOARING BAD LOANS Over the past decade, many small banks started aggressively lending to property developers and local government financing vehicles. That practice made them vulnerable to the post-COVID economic downturn, the property market upheaval, and the weakening financials of the indebted local governments. Rural commercial banks' bad loan ratio hit 3.04% in the third quarter of last year, nearly double the overall banking sector's 1.56%, show the latest official data. Analysts say the financial health of many small lenders is in a much worse state. In one of the most elaborate merger exercises last year, the government in northeast China's Liaoning province in September 2023 set up Liaoning Rural Commercial Bank with 20.8 billion yuan in registered capital. Liaoning Rural Commercial Bank then absorbed 36 local small rural lenders in June last year. Many of the absorbed lenders were struggling with soaring bad loans, the Reuters review of filings showed. Liaoning Dengta Rural Commercial Bank, one of the 36 institutions, reported a 21.54% bad loan ratio at the end of 2021, compared with a sector average of 1.73% at that time, the bank's latest available disclosures showed. Liaoning Rural Commercial Bank's balance sheet has not been made public yet. The lender did not respond to a request for comment. In a more recent consolidation move, Lanzhou Bank, based in northwestern Gansu province, received regulatory approval to acquire two rural banks, the country's banking sector regulator said in statement in December. As part of those acquisitions, financial details of which were not made public, the two banks' assets will be transferred to Lanzhou Bank, which had 453 billion yuan in assets and 1.73% bad loan ratio as of end-2023, its annual report showed. 'CASH MACHINES' The small banks merger drive is part of reforms launched by Chinese authorities in 2022 to overhaul the rural banking sector and clean up struggling smaller lenders, after a series of scandals that in some cases saw depositors losing money and holding rare public protests. Ten other small banks in the Liaoning province are set to be merged into Liaoshen Bank, established in June 2021 to absorb 12 smaller regional lenders, according to official disclosures seen by Reuters. Highlighting the risk of the merger drive creating bigger troubled banks, Liaoshen Bank inherited large amount of soured assets from the acquisition of two smaller banks, resulting in its bad loan ratio hitting 4.67% in 2022 and 4.53% in 2023. That's substantially higher than the 1.75% average among city commercial banks. "The two original banks had insufficient quality assets, large high-interest liabilities… unbalanced business structure, and weak operational management," Liaoshen Bank said in its 2022 annual report, adding it's still not a 'normal bank.' Liaoshen Bank did not respond to a request for comment. Some rural institutions had become shareholders' "cash machines" and had strayed from their mission of supporting the agricultural sector and small businesses, the central bank said in a report released in December 2023. "The problem is that there are so many small regional banks that the banking regulator clearly doesn't have the capacity to monitor them all," said Christopher Beddor, deputy China research director at Gavekal Dragonomics. These consolidations will create fewer, larger institutions that regulators can supervise more effectively, he said, but the strategy would not resolve issues like bad assets and "plenty of problems" will remain.
