The credit quality of Hong Kong banks has deteriorated again, with the ratio of specific classified loans rising to 2.01%. The Hong Kong Monetary Authority's Yuang Guoheng: This year's first priority is to monitor credit risk

The credit quality of the Hong Kong banking sector has further deteriorated, with the ratio of classified loans rising to 2.01% last year, an increase of 0.05 percentage points compared to the previous year. The Vice President of the Hong Kong Monetary Authority (HKMA), Yu Guoheng, stated that the rise in this ratio is mainly related to the exposure of commercial real estate in Hong Kong. This year, the HKMA's primary task is to monitor credit risk and will require banks to classify loans and make provisions in a timely manner. Yu Guoheng noted that although the overall economic environment in Hong Kong has improved and economic data is not bad, certain industries have still faced significant operational pressure over the past few years. Therefore, monitoring credit risk remains a key focus for the HKMA this year, ensuring that banks handle credit risks prudently and classify and provision in a timely manner. If banks make sufficient provisions and maintain good profitability, it indicates that overall credit risk is manageable. Continuous Monitoring of Industries Under Operational Pressure He believes that the current credit risk environment presents challenges in some areas, including exposure to commercial real estate in Hong Kong and certain industries among small and medium-sized enterprises (SMEs), such as transportation and construction, which are currently under significant operational pressure. Banks will continue to monitor the development of these situations, especially in industries that are particularly under pressure, but at the same time, hope that banks maintain an inclusive attitude to support SMEs in their upgrading and transformation. He further stated that the HKMA will guide banks on how to assess whether an account is problematic in terms of liquidity, business model, and whether the entire credit assessment process is sufficiently swift. HKMA Assistant President Zhu Liqiao added that exposure to commercial real estate in Hong Kong accounts for 14% of the total exposure of Hong Kong banks, with no concentration risk observed, and banks' provisions are also adequate, with profitability maintained. As for the pre-tax profit of retail banks in Hong Kong last year, it grew by 7.3% year-on-year. Ensuring Proper Sales Processes for Investment Products Additionally, protecting investors remains one of the HKMA's key tasks. Yu Guoheng stated that in a low-interest environment, investors tend to buy investment products, so the HKMA will ensure that banks have proper sales processes in place and will focus resources on regulating the sales processes of complex and high-risk products, such as private credit and digital asset investment products. The HKMA plans to implement additional targeted protective measures for the sale of such products. Yu noted that in June last year, 22 banks sold digital asset products, while a total of 28 banks did so throughout the year. The transaction volume of digital asset investments conducted by banks increased from HKD 17.2 billion in 2024 to HKD 74 billion in 2025. HKMA Assistant President Qu Yulin stated that the HKMA will study optimizing protective measures for the sale of complex and high-risk products. He pointed out that the private credit market is growing rapidly, but the retail level in Hong Kong is still in its infancy, with only about 100 customers participating in 2025, holding approximately HKD 200-300 million; in the private banking sector, the total sales last year were less than HKD 30 billion, involving over 4,000 customers, with a total holding amount of about HKD 100 billion, which accounts for less than 0.5% of the total market transaction volume of HKD 6.1 trillion for the year. He indicated that private credit involves complexities in structure, low liquidity, low transparency, and difficulties in valuation, thus the authorities are concerned about the due diligence, suitability assessment, and risk disclosure of related products. The HKMA will closely monitor the development of this market and plans to provide additional targeted protective measures and consult with the industry