HSBC exposure to bad commercial mortgages skyrockets in city

Staff reporter and Reuters

HSBC's (0005) Hong Kong branch saw its impaired commercial mortgages to local borrowers surge over 4.5 times to US$3.2 billion (HK$24.96 billion) in the first half, the Financial Times reported, highlighting the pressure of the city's sluggish commercial property market on the banking sector.

The bank responded that "a lot" of borrowers are still repaying interests, without offering related data.

According to HSBC's interim financial report, the credit impairment for commercial real estate lending in Hong Kong amounted to US$3.2 billion as of June 30, versus US$576 million six months ago.

Hong Kong is HSBC's largest commercial real estate loan market, taking up 45 percent of its exposure.

Fitch's North Asia bank ratings head David Wong said the focus on banks' exposure to the commercial real estate sector has been shifted to Hong Kong from the mainland. Wong added that they have not seen the bottom yet.

Last Friday, Fitch Ratings downgraded its viability rating for Hang Seng Bank (0011) from A+ to A, partly due to the pressure on the bank's commercial real estate business.

It comes as the city's offices continue to face high vacancy rates and falling rentals. CBRE's report showed that the Grade A buildings saw a vacancy rate of 16.9 percent, in the first half of the year. As a result, the rentals dropped faster by 2.1 percent in the first half. CBRE expects a decrease of up to 5 percent this year.

In other news, BNP Paribas has signed a deal to buy HSBC's private banking unit in Germany as it continues to expand its footprint in wealth management, the French lender said yesterday.