What are the risks of Hong Kong banks' increased China exposures?

Creditworthiness of many Hong Kong banks are at risk.

Moody's recently revealed that Mainland China exposures of Hong Kong banks have increased significantly to 16.5% of consolidated total assets at end-2012, up from 9.8% at end-2009 and this trend is set to continue, as banks expand their onshore presence and support the cross-border trade and investments of Mainland corporations.

Moody's warns that while this is an opportunity for the banks and their corporate customers, it also entails risks, with future credit performance likely to be different from past experience.

Meanwhile, Qiang Liao, Director, Financial Services Ratings at Standard & Poor's, notes that growing China exposures present one of major risks to creditworthiness of many Hong Kong banks.

"We see high credit risks in China’s lending market relative to Hong Kong’s. That said, we believe a significant portion of Hong Kong banks’ credit exposures to mainland China have been transferred back to Chinese banks, which could mitigate credit losses in a downside scenario," he added.

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