HSBC to improve ties with Hong Kong unit Hang Seng to mitigate risk

HSBC plans to tighten danger administration at Hong Kong unit Hang Seng Bank because of worries a few potential rise in unhealthy loans amid rising financial headwind and property sector disaster in China, mentioned two folks with information of the matter.

Hang Seng’s high executives might be extra carefully concerned in its mother or father’s Asia-Pacific danger administration discussions relating to company, retail, wealth and personal banking, the folks mentioned.

The initiative comes as HSBC’s pivot towards Asia coincides with financial turmoil in mainstay market China, the place a inventory rout and developer debt defaults have triggered concern about monetary sector well being on the earth’s second-biggest financial system.

Exposure to the mainland property sector, which has lurched from one disaster to a different since 2021, has pushed up Hang Seng’s unhealthy loans ratio in current quarters.

The plan to share experience and greatest practices by HSBC Asia Pacific’s danger administration operations with Hang Seng continues to be underneath dialogue however is more likely to be applied this yr, mentioned one of many folks.

Both folks declined to be recognized because the matter will not be public.

“HSBC recognises the importance of a strong risk culture. Active risk management helps us to achieve our strategy, serve our customers and communities and grow our business safely,” mentioned a spokesperson for the financial institution.

“HSBC Group entities stand to benefit from the strengths of the Group.”

Hang Seng, 62 per cent owned by HSBC, didn’t instantly reply to a request for remark.

A slowing Chinese financial system, protracted property sector disaster and native authorities debt travail have raised concern about publicity and resilience of international monetary companies and associates, and affect on their steadiness sheets.

Still, whereas the property disaster has hit efficiency at peer Standard Chartered, HSBC CEO Noel Quinn in November mentioned that his financial institution was “well provisioned” towards China actual property loss.

Hang Seng, alternatively, at its 2023 interim earnings reported an elevated non-performing mortgage ratio attributable to decline in gross mortgage steadiness and new unhealthy mortgage downgrades.

Its gross impaired loans and advances ratio was 2.85 per cent as at June-end versus 1.92 per cent within the year-earlier interval and a couple of.56 per cent on the finish of 2022, its January-June monetary report confirmed.

HSBC has doubled down on Asia whereas divesting from less-profitable companies elsewhere.

It dedicated US$3.5 billion price of funding to the area in 2021 to spice up market share in banking, insurance coverage and securities, whereas different international companies and buyers have held off and even retreated from the nation.

The London-headquartered financial institution generates greater than half of its pre-tax revenue from Hong Kong and mainland China and has a sizeable presence throughout the remainder of the area, whereas Hang Seng earns nearly all its revenue in Hong Kong and mainland China.

Under the brand new initiative, Hang Seng’s high executives will often take part in HSBC Asia Pacific’s danger administration conferences to debate business-specific points and key market developments, mentioned one of many folks.

The nation, regional and group-level danger administration conferences help focused perception and dialogue of lapses in danger urge for food and mitigating motion, based on a current HSBC report.

The strategy permits danger to be “promptly identified and mitigated, and informs risk-adjusted remuneration to drive a strong risk culture”, HSBC mentioned in its 2022 annual report and accounts.

Closer involvement of Hang Seng can even support the sharing of data associated to regulatory or different developments in main Asian markets which will have an effect on the Hong Kong unit, mentioned one of many folks.

“The growing economic challenges and rapid regulatory changes make it imperative for banks, even those that have limited geographical focus, to have the ability to get much wider read-across,” mentioned the individual.

“It will be a win-win for both HSBC and Hang Seng.” REUTERS