HKMA cuts banks’ capital buffers as outlook worsens

Hong Kong took measures on Monday to help banks put more money in the hands of local businesses in a move to shore up the city’s deteriorating economy after months of unrest.

The Hong Kong Monetary Authority, which operates like a de facto central bank, said it would reduce the amount of capital lenders have to maintain. The move is intended to make it easier for banks to lend to small and medium size businesses, which have been hit by months-long protests that have caused a precipitous drop in tourism, retail sales and property values.

The so-called counter-cyclical capital buffer was lowered to 2% from 2.5% with immediate effect, the authority said in a statement. The cut will allow banks to release an additional HK$200 billion to HK$300 billion ($25 billion to $38 billion) of credit, HKMA Chief Executive Eddie Yue said in a separate letter.

“We hope that banks will make good use of the newly released headroom to support SMEs,” Yue said. Hong Kong’s economic environment has “deteriorated significantly” since June, he said.

Lowering the capital buffer, which is built up in good times when the economy is growing and can be cut when it’s not, “will allow banks to be more supportive to the domestic economy and help mitigate the economic cycle,” he said.

Yue also reiterated the stability of Hong Kong’s banking system, adding that the city was well-positioned to withstand market shocks, calling it “robust and sound, with strong capital positions, ample liquidity and good asset quality.” Bloomberg