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Fitch Estimates Asset Quality Pressure on HK Banks from Local Commercial Real Estate Exposure to Persist into 2026
Recommend 12 Positive 11 Negative 11 |
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Rating agency Fitch estimated that asset quality pressure on Hong Kong's banking sector from exposure to local commercial real estate may persist until 2026 because of weak demand for office and retail properties, as well as rising vacancy rates that will continue to suppress valuations. If market recovery is delayed, further deterioration in asset quality could put additional constraints on banks' viability Ratings (VRs). While recent declines in Hong Kong interest rates have temporarily eased the burden on borrowers, the difficulties faced by real estate borrowers are still unlikely to see substantial relief unless local business sentiment improves dramatically. Fitch also noted that HANG SENG BANK (00011.HK), as a major Hong Kong bank subsidiary, recorded credit loss provisions of HKD4.8 billion in 1H25. The average loan-to-value ratio for non-performing local commercial real estate loans rose from 60% to 71%. If commercial real estate valuations continue to fall, this will trigger further provisioning risks. In contrast, HSBC HOLDINGS (00005.HK) is expected to maintain a stable non-performing loan ratio in 1H25, as its loan portfolio is concentrated among financially sound large local enterprises and is geographically diversified. AAStocks Financial News |
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