Hong Kong steps up China loan probe
The Hong Kong Monetary Authority (HKMA) has launched an onsite examination into Hong Kong-based Taiwanese banks’ loan exposure to mainland Chinese companies, banking sources said last week.
The HKMA, which is responsible for maintaining Hong Kong’s monetary and banking stability, has stepped up its supervision of Hong Kong banks since October 2013 after a steep rise in offshore lending to mainland Chinese companies.
This is, however, the first onsite examination by the HKMA targeting Taiwanese banks’ lending to Chinese companies, bankers said. Taiwanese banks are some of Asia’s biggest lenders and their loan exposure to Chinese companies has been in focus since the summer amid growing fears of defaults by privately-owned Chinese companies.
The HKMA started to examine the Hong Kong units of Bank of Taiwan in August and CTBC Bank in September and is scheduled to visit First Commercial Bank and Taiwan Cooperative Bank in November, the sources said. Each onsite investigation is expected to continue for nearly two weeks.
“The HKMA has regular onsite examinations such as Know Your Customer. But this is the first one concentrated on loans to Chinese firms,” a Hong Kong-based loan banker at a Taiwanese bank said.
The HKMA said that it is reviewing the lending of all authorised institutions in Hong Kong and is not targeting Taiwanese banks corporate lending directly.
“All authorised institutions are subject to the supervision of the HKMA. The HKMA will review the lending activities of all authorised institutions as part of its ongoing supervision through onsite examination and offsite surveillance to ensure that their practices are prudent,” an HKMA spokesperson said.
Data collection
Similar investigations are taking place in Taiwan into the exposure of the country’s banking sector to Chinese loans, particularly for privately-owned companies.
The Ministry of Finance asked Taiwan’s state-owned banks to provide details of outstanding loans to Chinese companies in early October.
The investigation was broadened to commercial banks by Taiwan’s Financial Supervisory Commission (FSC) in late October.
The HKMA has sent out a two-part questionnaire to Hong-Kong based Taiwanese banks asking for general information on lending to mainland Chinese corporates and management information systems.
”The investigation by HKMA is focusing more on how we manage our risks of lending to Chinese companies, while the ones by Taiwanese authorities are more data collection,” a second Hong Kong-based banker with a Taiwanese bank said.
The HKMA has asked Taiwanese banks in Hong Kong to submit details of their internal structures, including employee information on credit approval, marketing, processing and monitoring, the sources said. They have also been asked to outline the growth of mainland lending in the last six months, reasons for the growth and their business strategies for Chinese companies in 2014.
The HKMA is also seeking information on credit risk management, credit risk mitigation tools and risk control limits on loans for mainland Chinese companies.
Taiwanese banks had US$27.9bn of outstanding loans to Chinese companies and individuals in offshore banking units and overseas branches at the end of August 2014, according to Taiwan’s FSC. Overdue loans totalled US$40m and the overdue loan ratio stood at 0.14%.
Chinese onshore companies borrowed HK$2.276trn (US$293.6bn) of customer loans in 2013, excluding HK$313bn of trade finance loans, according to the HKMA.
