HSBC's commercial property exposure 'well contained,' lender says

HSBC (0005) remains confident in the quality of Hong Kong commercial property borrowers and believes that the potential extreme downside from this exposure is “well contained.”

The lender is “very comfortable” with the 42 percent unsecured loans to the local commercial real estate sector, its chief financial officer Pam Kaur said, adding that there is very limited impairment for the book that is typically granted to strong listed developers who are part of conglomerates with diverse cash flows.

The bank is more focused on the US$1.4 billion (HK$10.92 billion) credit-impaired loans that have a loan-to-value ratio of more than 70 percent, chief executive Georges Elhedery said. It had a US$500 million allowance for expected credit losses against the exposure, which should be able to contain the potential extreme downside, he said, adding that the lender’s priority in the short run is to help its customers navigate through some of the challenges.

While acknowledging oversupply in the commercial property segment, in particular the office, has led to a short-term challenge in the sector, Elhedery noted that additional government action has been taken to limit land supply for office real estate, and these measures will support the segment in the medium term.

The London-based bank booked US$1.1 billion in expected credit losses in the second quarter, including US$400 million related to Hong Kong’s CRE sector.

STAFF REPORTER