The IMF recommends strengthening the supervision of loans to mainland China, increasing supervision of banking groups and regulating mortgage lending by non-banks.

The IMF (International Monetary Fund) has Posted its latest Financial System Stability Assessment (FSSA) report on Hong Kong, following an assessment conducted as part of the Financial Sector Assessment Program (FSAP).

“Sound macroeconomic and prudential policies over the years have provided the Hong Kong SAR with important buffers to deal with the current slowdown and future shocks,” the IMF said. “The banking sector remains well capitalized, profitable and non-performing loan ratios remain low. “

The report also notes that Hong Kong’s exchange rate mechanism, supported by large foreign exchange reserves, continued to support financial stability.

The FSAP identifies the close ties to mainland China, strained real estate valuations and exposure to changes in the global market and national risk sentiment as the main macro-financial risks for Hong Kong. These risks are compounded by escalating tensions between the United States and China, he said.

While stress tests conducted by the FSAP show that the financial system is resilient to severe macro-financial shocks and that the banking system is also resilient to liquidity problems, the report highlights “pockets of vulnerability” in bank branches. foreign, investment funds, households and non-financial companies.

The FSAP recommends strengthening the supervision of banking groups having both foreign branches and local subsidiaries in Hong Kong, strengthening the supervision of liquidity risk for banks operating with several group entities and ensuring that the models of internal risk to monitor lending to mainland China are sufficiently forward-looking.

Regarding Hong Kong’s institutional framework for macroprudential policies, which the report finds is working well, there is still room to strengthen oversight of systemic risks, improve communication and mainstream non-bank mortgages. within the regulatory framework.

Hong Kong Monetary Authority (HKMA) Deputy Managing Director Arthur Yuen recently indicated that the central bank is currently considering expanding its regulatory scope to cover mortgages from non-bank institutions such as finance companies and financial institutions. real estate agents.

The IMF report says banking supervision and regulation in Hong Kong remains strong overall, including with respect to cross-border links and housing risks, but that continued attention and review is needed regarding competing priorities and adequacy of surveillance resources.

While welcoming the active role of the Hong Kong authorities in promoting the city-state as a fintech hub, the FSAP recommends adopting a more proactive intersectoral approach. To date, the main focus has been on banks.

In one declaration, the Hong Kong government welcomed the release of the IMF report, saying it reaffirms the city’s position as an international financial center with a resilient financial system, sound macroeconomic and prudential policies and regulatory frameworks and strong monitoring.

“The positive assessment of our financial system is a clear recognition of the government’s long-standing efforts to preserve financial stability, which are supported by sound policies as well as strong institutional frameworks and market infrastructure,” said Hong Kong Financial Secretary Paul Chan.

“We will continue to strengthen our core strengths, fully exploit our unique advantages and identify new areas of growth, with a view to ensuring Hong Kong’s competitiveness and long-term prosperity. “

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