Hong Kong banks face rising risks amid prolonged property slump, Moody’s warns

Hong Kong banks were likely to be more selective in extending credit to developers amid a prolonged property slump that could pose a “major risk” to lenders, according to Moody’s Ratings.

Banks’ property development and investment loans accounted for 16 per cent of their total lending as of June, the credit-rating agency said in a report on Wednesday.

Banks’ collective exposure to NWD, one of the city’s most highly leveraged developers, accounted for 1 per cent of gross loans and 8 per cent of property development and investment loans.

Hong Kong’s secondary home prices have fallen for three years in a row and the outlook does not look good given geopolitical conditions and the chances of interest rates remaining higher for longer. The 27 per cent combined slump from 2022 to 2024 is the second-longest since official records began in 1993.

NWD’s net gearing ratio – a measure of a company’s indebtedness – had risen to 89 per cent from 55 per cent in June, HSBC said in a report last month. The company said it would sell noncore and other assets totalling HK$13 billion (US$1.67 billion) by the end of the financial year in June after posting a record loss of HK$19.7 billion last year.