HSBC is taking direct action to address a growing problem of bad real estate debt within its Hong Kong subsidiary, Hang Seng Bank. The bank has initiated a process to sell off portfolios of property-backed loans totaling more than $3 billion. This move comes after Hang Seng Bank experienced an 85% year-on-year increase in impaired Hong Kong real estate loans, highlighting severe stress in the city's property market.
Approximately two months prior, senior HSBC executives, including the London-based global chief corporate credit officer and the head of its special credit unit, intervened to push Hang Seng to begin this divestment process. This extraordinary step underscores HSBC's deepening concern over the struggling Hong Kong property sector, which is facing its worst slump since the Asian financial crisis of the late 1990s. As of June, Hang Seng Bank, in which HSBC holds about a 63% stake, reported $3.2 billion (HK$25 billion) in impaired loans to Hong Kong commercial real estate.
The broader Hong Kong banking sector is under considerable strain, with discussions even surfacing about the creation of a "bad bank" to absorb sour loans across the industry. Fitch Ratings estimates these sour loans could be as high as $25 billion based on data from the Hong Kong Monetary Authority. An HSBC spokesperson stated that banks continuously aim to optimize their credit portfolios and manage risks, while asserting that Hang Seng takes its own decisions under its governance. However, the direct involvement of HSBC senior management suggests a more urgent and coordinated effort to mitigate the risk.
