Hong Kong Bank Loan Growth Slowed in 2011 From Two-Decade High

Hong Kong banks expanded their loan portfolios at a slower pace last year after the fastest growth in two decades in 2010, according to the de-facto central bank.

Total loans in the city increased 20.2 percent, the Hong Kong Monetary Authority said yesterday. Lending climbed 28.6 percent in 2010, the highest rate since 1990, it said.

“Credit growth was very fast in early 2011,” Arthur Yuen, deputy chief executive of the HKMA, told reporters. “Growth has slowed obviously since August and September.”

Credit tightening in China has spurred loan demand from mainland companies in Hong Kong, soaking up liquidity in the city. The lending slowdown from August came amid concern that Europe’s debt crisis would worsen, curbing global economic growth, and as Hong Kong narrowly skirted a recession in the third quarter.

The expansion in trade finance slowed to 26.8 percent last year from 56.7 percent in 2010, the HKMA said. Residential mortgage lending rose 8 percent compared with 15.3 percent. Banks’ loan-to-deposit ratio in Hong Kong dollars rose to 85.5 percent at the end of November from 69.9 percent two years ago.

Hong Kong’s economy grew 0.1 percent in the third quarter, after a 0.4 percent contraction in the prior three months, as low unemployment and tourists from China boosted consumption while Europe’s crisis dragged on exports.

“We have been particularly monitoring the credit-underwriting standards of banks in areas where we’ve seen relatively substantial loan growth in the past two years and one aspect of that is exposure to mainland entities,” Yuen said. “So far we have not seen any systemic concerns. Banks have been upholding the underwriting standards very well.”

European banks’ operations in Hong Kong remained “largely stable” last year, Yuen said. Loans by the banks increased 5 percent in 2011 while declining 6 percent in December from the prior month, he said.

“How much of that is due to seasonal factors and how much of that is due to a change in business objectives and targets, we have to observe for a few more months,” Yuen said.

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