<div id="readability-page-1"> Lenders in Hong Kong are expected to experience «more collateral pain», according to an S&amp;P report, which said it is too early to call the bottom on the city’s commercial property market. There are signs of stabilization in Hong Kong’s commercial property market with office rents falling by 1 percent in the second half of 2025 and retail by 2 percent compared to declines of 5 percent and 7 percent, respectively, in 2024. However, «it's too early to call a bottom», according to an S&amp;P Global Ratings report citing ample supply of office space and competition faced by local retailers, including cross-border offerings. «In our base case, we assume further downside, though less than last year,» the report said. As a result, S&amp;P believes that «more collateral pain is likely this year for Hong Kong banks» with the continued downturn of commercial real estate loans in 2026, as rents keep sliding. Still Resilient Under Severe Shocks Still, the credit rating agency remains confident that Hong Kong’s banking system as a whole would remain resilient even under a sever hypothetical 50 percent discount in the collateral value of commercial properties. This is due to bank efforts in the last five years to reduce exposure as well as solid earnings and excess capital to absorb potential losses. Large banks are better positioned to absorb stress due to diversified loan portfolios, strong earnings capacity and robust risk management. On the other hand, a subset of small banks with «high exposure to non-prime commercial properties, weaker earnings buffers, and aggressive risk appetite» are vulnerable to tail risks. «These tail risk exposures warrant close monitoring despite the system's overall strength,» S&amp;P added. </div>

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S&P reports that Hong Kong lenders may face "more collateral pain" as the commercial property market stabilizes, with office rents projected to fall by 1% and retail by 2% in 2025. Despite signs of stabilization, S&P warns it is too early to declare a market bottom, citing ample office supply and competition. The report anticipates further declines in commercial real estate loans in 2026, although Hong Kong's banking system is expected to remain resilient even under severe collateral value discounts, thanks to reduced exposure and strong earnings. However, small banks with high exposure to non-prime properties may face vulnerabilities.

- An S&P report indicates that Hong Kong lenders will face increased collateral pain as the commercial property market shows signs of stabilization, with moderate rent declines in 2025.  
- Despite expectations of continued downturn in commercial real estate loans in 2026, S&P believes the banking system will remain resilient due to measures taken in recent years to reduce exposure and maintain solid earnings.  
- However, small banks with high exposure to non-prime properties are identified as vulnerable and require close monitoring amid the overall strength of the system.

S&P: «More Collateral Pain is Likely» for Hong Kong