HKMA May Tighten Bank Funding Rules to Protect 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 yesterday. 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.

Banks Association

The idea of new measures “makes sense” and the rules won’t have a “huge” impact on lending margins, Benjamin Hung, chairman of the Hong Kong Association of Banks and chief executive officer of Standard Chartered Plc’s local unit, told reporters in Beijing today.

Hong Kong banks’ loans have grown faster than deposits this year, Hung said. For the rest of 2013, lending may maintain the same pace of growth as in the first nine months or slow slightly, he said.

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.

Before it's here, it's on the Bloomberg Terminal.