Date
26 September 2017
Mainland firms will be less likely to take out loans in foreign currencies if the renminbi weakens significantly, Alex Cheung says. Photo: HKEJ
Mainland firms will be less likely to take out loans in foreign currencies if the renminbi weakens significantly, Alex Cheung says. Photo: HKEJ

Lenders see headwinds, increasing risks amid RMB depreciation

Banks in Hong Kong are likely to be badly hit if the depreciation of the renminbi continues in the next three months, wiping out as much as 10 percent of its value, banker Alex Cheung Kin-sang said.

In a report Thursday, the Hong Kong Economic Journal quoted Cheung, managing director and head of institutional banking at DBS Bank (Hong Kong) Ltd., as saying the incentive for mainland firms to raise funds offshore in US dollars or other foreign currencies will be reduced.

(Interest payments and repayments of principal on loans in foreign currencies become more expensive in renminbi if the Chinese currency weakens.)

As a result, Cheung said, growth in the overall demand for loans could fall to the low double-digit percentages or high single digits in the next 12 to 18 months.

Certain corporate loans with renminbi savings as collateral that are obliged at present to maintain a 5-10 percent margin as a buffer against exchange rate changes may be required to top up the pledges or margin, he said.

A spokesman for the Hong Kong Monetary Authority said banks should prudentially manage their lending risk and diligently enforce a set of stringent and effective risk control measures.

Lenders will need to review the sufficiency of the existing levels of pledges in their loan portfolios if the renminbi depreciates substantially in the coming month, Cheung said.

Although the long-term outlook for the internationalization of the renminbi remains positive, Cheung said, the growth in the pool of the Chinese currency in Hong Kong and the dim sum bond market will inevitably be affected.

[Chinese version中文版]

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