Financial analysts cautioned that Hong Kong’s banking sector could be burdened if the city duplicates Macao’s policy of allowing principal-free, interest-only repayments for mortgage loans, given that Hong Kong’s economy is being hammered by the triple whammy of global trade tensions, a weakening mainland economy, and the spread of the novel coronavirus.
Macao rolled out the measure to shore up its economy amid the spread of the disease when the Macao Association of Banks announced on Monday that mortgage-loan providers in the city will allow cash-strapped local mortgage clients to apply to be allowed to repay only the interest on their mortgage loans, with principal repayments shelved for up to six months. This policy would be applicable to individuals, merchant and company clients.
With the recent spread of the new pneumonia coronavirus, the situation may get aggravated and the city’s banks are assumed to shoulder a certain profit pressure, contingent on the epidemic development
Standard and Poor's
US-based credit rating agency Standard and Poor's is worried that Hong Kong banks’ profit would be stressed if they were to adopt a similar policy.
“With the recent spread of the new pneumonia coronavirus, the situation may get aggravated and the city’s banks are assumed to shoulder a certain profit pressure, contingent on the epidemic development,” S&P said in its research report on the Hong Kong banking industry.
S&P is worried that the unemployment rate in Hong Kong will cast a shadow on credit receivables and the residential mortgage business of banks.
As at the end of last year, the jobless rate was 3.3 percent versus the historic high of 8.3 percent in 2003, when Hong Kong was battered by the SARS epidemic.
The Hong Kong economy contracted 1.2 percent for the full year of 2019, the first annual contraction in a decade, the Census and Statistics Department said on Monday.
In the fourth quarter of 2019, the city’s GDP growth dived 2.9 percent from a year ago, versus the negative growth of 2.8 percent in the third quarter, making the second consecutive quarter of a year-on-year contraction.
“A more recent downside risk to Hong Kong’s economy is from the outbreak of the coronavirus. Hong Kong’s economy is at risk of severe damage if the outbreak continues to escalate,” US credit rating agency Moody’s Investors Service said.
UBS Investment Bank revises down Hong Kong GDP growth forecast to negative 1.8 percent for the full year of 2020.
Global trade credit insurer Euler Hermes estimates the Hong Kong economy will slide 0.6 percent this year and business insolvencies to increase 9 percent in the same period.
