Hong Kong’s financial system remains resilient, and different facets, including the Linked Exchange Rate System, continue to function effectively, Secretary for Financial Services and the Treasury James Lau Yee-cheung told lawmakers on Monday.

“Stress tests conducted by financial regulators indicate that even in extremely adverse situations, banks, intermediaries in the securities sector and insurers will still be able to meet the relevant regulatory requirements. Our financial system has withstood crises one after another, and we believe that with our resilient regulatory regime, Hong Kong can cope with market volatility,” Lau said at a special meeting of the Legislative Council Finance Committee on Monday.

Our financial system has withstood crises one after another, and we believe that with our resilient regulatory regime, Hong Kong can cope with market volatility 

James Lau Yee-cheung, secretary for financial services and the treasury

The estimated expenditure allocation to the Financial Services Branch and departments under its purview for 2020-21 is about HK$2.3 billion (US$297 million), representing an increase of about HK$400 million over last year. The increased expenditure will be earmarked for safeguarding Hong Kong’s financial stability on the one hand, and promoting market development and enhancing financial cooperation with the Chinese mainland on the other in order to reinforce the city’s status as an international financial center.

“Under the influence of COVID-19 and many other uncertainties in the global and local environments, the global and Hong Kong financial markets have become more volatile, and our economy has worsened abruptly,” Lau cautioned.

OCBC Wing Hang Bank Economist Carie Li echoed Lau’s concerns. “On the banking system, funding pressure remains high. Apart from funding pressure, banks might have been concerned about credit risk, as the household debt to gross domestic product (GDP) ratio rose to a record high of 80.4 percent in the fourth quarter last year, when households’ debt-servicing ability will be undermined by elevated borrowing costs and lower household income,” she said.

Financial Secretary Paul Chan Mo-po said on Sunday that the government will no longer be targeting specific industries when it unveils its next round of coronavirus relief measures, but will be offering “comprehensive” aid to all industries.

However, Chan gave no concrete details on exactly what measures the government is planning or when they will be introducing another round of relief to follow the HK$30 billion Anti-epidemic Fund announced in February.

In his blog, the finance chief said many businesses have been hit, with many externally oriented firms having cash flow problems because many American and European partners have been canceling orders or have fallen behind on payments.

Initially, sectors such as retail and tourism had to bear the brunt of the economic impact of the coronavirus, but the impact has now spread to “virtually all industries,” the finance chief added. Businesses and individuals should therefore make the needed operational and financial arrangements to tide themselves through until then, he said.

Meanwhile, the Hong Kong Monetary Authority (HKMA) said on Friday it will free up HK$200 billion of lending capacity to banks in Hong Kong by lowering the current level of regulatory assets. The regulatory reserves come from commercial banks' earnings and are deposited with the HKMA as a buffer against losses.

The HKMA has lowered the Countercyclical Capital Buffer ratio twice by a total of 1.5 percentage point since October, releasing around HK$700 billion to HK$800 billion of lending capacity, enabling banks to provide more credit.

Since the establishment of the Banking Sector SME Lending Coordination Mechanism in October, nearly 9,000 applications from small and medium-sized enterprises (SMEs) involving principal repayment holidays, loan extensions and relief loans have been approved thus far, involving over HK$57 billion, the HKMA added.

Total loans granted by the banking sector increased by HK$192 billion during the five months from the end of September to the end of February. Overall credit lines granted by banks to SMEs in the fourth quarter of last year also grew by HK$6.9 billion, HKMA data added.