(21 July 2025 – Hong Kong) Rising non-performing loans (NPLs) among Hong Kongs major lenders is growing so quickly that industry stakeholders are considering the creation of a “bad bank” to absorb the financial hub’s toxic debt.
The mere mention of a bad bank for real estate debt is enough to spark serious concern with discussions between the city’s major banks preliminary in nature only. A bank for bad loans is generally structured to take over the NPLs, debt and other distressed assets to improve the balance sheet of another bank.
Ultimately lenders would face significant hurdles before putting the idea into practice as Hong Kong Monetary Authority (HKMA) hosed down reports of such a plan. Systemic risks are relatively limited with bad loans from all sectors of the city’s economy standing at US$25 billion at the end of March, amounting to a mere two percent of the banking system’s total, according to the HKMA’s statistics.
“Overall, banks in Hong Kong maintain a healthy balance sheet; their credit risk is manageable and provisions are sufficient. The HKMA has no intention to set up the rumoured ‘bad bank’. We understand that the relevant banks also do not have such a plan” the HKMA said in a statement.
“Hong Kong’s property sector may face short-term challenges, but the risks remain manageable because of the city’s diversified economy and solid foundation. There is no need to worry about anything akin to ‘too big to fail’, as the property sector represents only a small portion of Hong Kong’s economy and bank loans. Therefore, the risks are manageable” commented Financial Services Development Council Chairman, Benjamin Hung Pi-cheng.