Babak Nikzad, partner in charge of financial services practice at KPMG LLP, said the Hong Kong Monetary Authority is likely to ask banks in the city to raise their regulatory reserve requirement.
HKMA, as the city's de facto central bank is also known, last year requested Hong Kong lenders to raise their reserves to cushion against a potential slowdown. Nikzad was speaking to reporters in Hong Kong today.
On the HKMA:
``Potentially, it's very likely, given the messages and announcements by the HKMA, that they will ask the banks to increase the regulatory reserve requirement.''
On outlook for Hong Kong banks:
``Any further reductions in the U.S. interest rates, which Hong Kong has to follow because of the Hong Kong dollar peg, is going to probably have a detrimental effect on net interest margins because we are at zero interest rates for deposits, so banks with surplus Hong Kong dollar-deposits will not be able to enjoy the treasury yields that they enjoyed in 2007.''
The drop in trading volumes on the Hong Kong stock exchange ``is going to have a negative impact on commission income.''
A slowdown in China, especially in real estate, ``means that banks that have exposure to those sectors will potentially see an uptick in non-performing loans. These are some of the issues that the banks' management will need to deal with in the next two or three quarters.''
On further subprime losses incurred by Hong Kong banks:
``Based on disclosed information, total investment writedowns exceeded HK$7.67 billion ($984 million) for Hong Kong-listed banks. There is now about HK$12.6 billion in remaining exposure after the 2007 write-offs. This is an amount that is well affordable by the Hong Kong banks. For the structured instruments where the underlying assets are not that bad, if you have holding power for the medium to long term, you may actually see some of the losses you've taken on a marked-to-market basis coming back in the next two to three years.''
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