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Hong Kong Banks Face Credit Risk from $22bn Exposure to Smaller Developers
Banks are demanding stricter refinancing terms and credit enhancements such as collaterals or guarantees on the $22bn (HKD 173bn) debt to mid-sized developers, according to Bloomberg sources. People familiar with the matter mentioned that Lai Sun Development, for example, is facing extra scrutiny as it looks to refinance a loan due in October. Other people added that to secure a $129mn (HKD 1.02bn) loan, Wang On Properties had to agree to repay with residual proceeds from several joint venture projects in Hong Kong, including its developments in Ap Lei Chau. Moody’s had called out a few lenders in recent days to warn them about their lending risks. According to a Jefferies report, $5.9bn (HKD 46bn) in short-term debt for 11 publicly traded companies is at risky levels in the next 12 months.
“Smaller banks typically have a weaker client base and are likely to be more exposed to second-tier developers and non-prime properties,” said Phyllis Liu, director at S&P Global Ratings. She estimated that such lenders have about 5% more property loan exposure compared with the three largest lenders in Hong Kong. “They will face more volatility in their asset quality.”
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