The Monetary Authority’s clarification on commercial property is about maintaining vigilance, not sounding the alarm
Call it the three stages of commercial property loan grief. It’s not the kind of technical metrics that usually get newspaper readers all hot and bothered. But since the local market has been going through a prolonged slump, people are getting an education in commercial real estate finance. The latest news has been the exposure of HSBC, the city’s largest lender, to the sector. Almost three-quarters of its commercial property loans were supposedly flashing warning signals by the end of June. HSBC reportedly accounts for US$32 billion of the city’s total US$234 billion in such loans.
More loans are being reclassified at higher stages of credit risk, such as at stage 2 for significantly increased risk and stage 3 for signs of impairment. But if that is indicative of the city’s overall loanbook, the overall classified loan ratio – a key measure of borrowings considered substandard, doubtful or at loss – should worsen.
But that’s not the case. On the surface, those headline numbers certainly sound alarming, with hints of a property sector collapse and a banking crisis. In context, though, there is less to this than meets the eye.
