S&P warns as HK rating maintained

Business | Winnie Lee 14 May 2020

S&P Global Ratings says Hong Kong is facing a growing risk of being downgraded as the city's retail industry is expected to be hit by the mainland economic slowdown and anti-government protests have returned to the streets.

The credit rating of Hong Kong was maintained at AA+, S&P said. However, the government has launched a series of pandemic relief measures by using fiscal reserves, which may further weaken the credit strength in the future, S&P added.

S&P is the only one among the big three rating agencies which has not lowered Hong Kong's ratings and changed the outlook.

Fitch Ratings and Moody's Investors Service have downgraded Hong Kong's rating twice since September last year.

The retail industry will continue to be hit by an economic slowdown and social unrest and Hong Kong's economy was expected to shrink 3.9 percent this year and grow back to 4.8 percent next year.

Home prices will fall 10-12 percent from the peak this year, S&P estimated. The declining trend was not apparent due to the shortage and low-interest environment.

The agency expects local developers to launch sales of new properties in the recent stable market and the balance sheet of the developers was improving, reflecting that the industry has learnt its lessons from the SARS crisis and financial tsunami.

It also said banks will face profit pressure, dragged down by the narrowed net interest margin, volatile financial market, the rising cost of credit liability and the increase in non-performing assets.

The banks had adequate liquidity with the 18.5 percent of Common Equity Tier 1 capital ratio, it added.

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