Date
17 December 2017
Hong Kong's de facto central bank has completed a consultation on a tough new loss provision requirement for important domestic lenders. Photo: Bloomberg
Hong Kong's de facto central bank has completed a consultation on a tough new loss provision requirement for important domestic lenders. Photo: Bloomberg

Key lenders to have bigger loss buffer from 2016

Hong Kong wants systemically important domestic banks to have a stronger buffer against potential losses, the Hong Kong Economic Journal reported Tuesday.

They will be required to boost their loss provisions by 1 percentage point to 2.5 percentage points on top of their tier 1 capital ratios starting 2016, the report said, citing the Hong Kong Monetary Authority.

Bankers expect the new regulation to increase costs and possibly affect dividend and bonus payouts.

Also, it might result in the double counting of capital, costing lenders more funding. Return on equity could be undermined if these banks need to replenish capital to comply with the requirement, the report said.

The increased buffer is intended to stop systemic risk from being passed to other parts of the banking system in the event of bankruptcy by a systemically important domestic lender.

The de facto central bank completed an industry consultation last week. Banks will be categorized as systemically important according to the impact of any collapse on the Hong Kong economy.

A final list is expected by the end of the year in line with a Basel III 2016-2019 timetable for introducing the new policy.   

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Freelance journalist

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