The Monetary Authority announced today, 29 January 2020, that the countercyclical capital buffer (CCyB) for Hong Kong remains unchanged at 2.0%.
“The economic environment in Hong Kong is uncertain at this juncture.” Mr. Eddie Yue, the Monetary Authority, said. “Maintaining the countercyclical capital buffer at the current level will allow more time to observe the trend, so that an appropriate decision on the countercyclical capital buffer can be made later.”
Further details of the decision may be found in the Announcement of the CCyB to Authorized Institutions on the HKMA website.
In setting the CCyB ratio the Monetary Authority considered a series of quantitative indicators and qualitative information including an “indicative buffer guide” (which is a metric providing a guide for CCyB ratio based on the gap between the ratio of credit to GDP and its long term trend, and between the ratio of residential property prices to rentals and its long term trend). The latest indicative buffer guide, calculated based on 2019Q3 data, signals a CCyB of 0.75%. The projection based on all available data however suggests that the indicative buffer guide would very likely signal a higher CCyB than this when all relevant 2019Q4 data become available.
Whilst the indicative buffer guide, as its name suggests, provides only a “guide” for CCyB decisions, the determination of the jurisdictional CCyB ratio for Hong Kong is not a mechanical exercise and, in addition to the indicative buffer guide, the Monetary Authority also reviewed a range of other reference indicators. The information drawn from all these sources suggests that the economic environment in Hong Kong is uncertain. It is therefore appropriate to maintain the CCyB ratio at 2.0% at this stage.
The CCyB is an integral part of the Basel 3 regulatory capital framework and is being implemented in parallel by Basel Committee member jurisdictions worldwide. The CCyB has been designed by the Basel Committee to increase the resilience of the banking sector in periods of excess credit growth. The banking sector can then act as a “shock absorber” in times of stress, rather than as an amplifier of risk to the broader economy.
The power to implement the CCyB in Hong Kong is provided by the Banking (Capital) Rules, which enable the Monetary Authority to announce a CCyB ratio for Hong Kong. The specific CCyB requirement applicable to a given Authorized Institution (AI) is expressed as a percentage of its CET1 capital to its total risk-weighted assets (RWA). Each AI’s CCyB requirement may vary depending on the geographic mix of its private sector credit exposures and the CCyB applicable in each jurisdiction where it has such exposures.
29 January 2020