HKMA May Tighten Bank Funding Rules to Safeguard Credit Supply

The Hong Kong Monetary Authority may introduce measures to discourage banks from using short-term funding for long-term loans as the regulator seeks to ensure faster lending growth doesn’t destabilize the economy.

Loans have risen by a “relatively fast” annualized rate of 18 percent to 19 percent from January through September, HKMA Chief Executive Norman Chan told reporters in Beijing. If final September data show growth stayed strong, the de facto central bank will tell lenders to cut reliance on the interbank market and seek more stable sources of funds, matching the maturities of borrowing and lending more closely, he said.

The HKMA said in July it had summoned banks for meetings after annualized loan growth doubled to almost 40 percent in June, as a cash crunch in mainland China’s interbank market increased Hong Kong’s relative attractiveness for borrowers. Units of foreign banks have been subject to the maturity matching requirements since late 2011.

“During a liquidity squeeze, banks could be forced to call in loans from corporates just because funding stops due to a mismatch,” said Chan. “We don’t want to see that. We wish to ensure banks have stable funding sources.”

Total loans in the city may climb by 15 percent to 19 percent this year, HKMA Deputy Chief Executive Arthur Yuen said last month. That compares with 20 percent in 2011 and 29 percent in 2010, the fastest pace since 1990.

Separately, the HKMA is interested in seeking a higher quota to invest in China’s interbank bond market, after using up its 30 billion-yuan limit, Chan said.

To contact the reporters on this story: Fion Li in Hong Kong at fli59@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.