People’s Republic of China, Hong Kong Special Administrative Region Financial Sector Assessment Program of IMF

Systemic risk oversight and macroprudential policies

Hong Kong SAR authorities have successfully implemented macroprudential policies over the past decade to mitigate systemic risk. Due to prudent fiscal policies — with the need to strive to achieve a fiscal balance written into the Basic Law, and the adoption of the Linked Exchange Rate System — authorities have often resorted to macroprudential policies to limit the buildup of financial vulnerabilities in corporate and household sectors. The current Mapp stance in the Hong Kong SAR is among the most stringent in the world, as indicated by the level of LTV/DSTI for new residential mortgages and Countercyclical Capital Buffer (CCyB) for the banking sector. Many innovative policy tools — such as stressed DSTI, and sector-specific risk weight floor — have been adopted and fine-tuned by the authorities to safeguard banking stability.

The responsibility of systemic risk oversight is shared among financial regulators, consisting of the HKMA, SFC and IA monitoring financial vulnerabilities in their respective sectors: banking, securities and futures, and insurance. The identification of sources of systemic risk is based on both model-based quantitative monitoring and a frequent risk-based surveillance dialogue with the financial industry. Each regulator has dedicated resources to collect data, develop analytical models, and conduct stress testing for systemic risk analysis in its respective sector. Joint effort by the regulators on research and analytical projects, risk monitoring, and on-site supervision have also improved the exchange of insights among them. Analytical capacity, although differing among the regulators, is generally good. Targeted effort is underway at the HKMA to collect more granular data on residential mortgage loans and corporate loans for a deeper understanding of banks’ exposures in the areas.