HONG KONG, July 26 | Fri Jul 26, 2013 4:02am EDT
HONG KONG, July 26 (Reuters) - A jump in loans by Hong Kong's banks has triggered concerns about rising risks to the city's banking system and prompted the central bank to enquire about the reasons behind the growth.
Overall loan growth in Hong Kong accelerated to an annnualised rate of nearly 40 percent in June 2013 compared to 20 percent in May, according to a spokesman at the Hong Kong Monetary Authority, the city's de-facto central bank.
While the HKMA does not set any regulatory benchmark on loan to deposit ratios for the city's lenders, data from its website showed the loan-to-deposit ratio for banks in all currencies had spurted to its highest level at nearly 70 percent in May since early 2006, the period for which data is available.
"As such, we have been meeting with a number of banks to understand the reasons behind the growth, whether they think the growth momentum will continue or not, and how banks are managing the associated credit and liquidity risks," a HKMA spokesman said.
Foreign currency loan growth has led the charge. According to the HKMA, the U.S. dollar loan to deposit ratio rose by 5 percentage points to 85 percent with large corporations likely leading the list of borrowers tapping funds in Hong Kong.
Earlier, local media reports said that authorities were worried about a jump in foreign currency loan growth.
A possible explanation behind the spurt in loans may be the turmoil in global financial markets since June when the U.S. Federal Reserve signaled its desire to withdraw the supply of cheap money. That sent global financial markets, particularly debt markets - which companies tap to raise money - into a tailspin.
Only about $1.4 billion in bonds have been sold in Asia excluding Japan in the month of June compared to an average $18 billion on a monthly basis for the first five months of the year, according to Thomson Reuters data.
Not a single bond has been sold in the offshore yuan markets in more than a month. Related story link: link.reuters.com/jes89t (Reporting by Saikat Chatterjee; Editing by Jacqueline Wong)
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