HSBC Pushes Hang Seng Bank to Offload Real Estate Debt
HSBC Holdings Plc is taking a significant step by getting directly involved with its Hong Kong subsidiary, Hang Seng Bank Ltd., to encourage the sale of its real estate debt portfolio, amid rising worries about the struggling real estate scene in the city.
About two months back, HSBC directed its Global Chief Corporate Credit Director and the head of the Special Credit Unit to start the selling process for Hang Seng’s portfolio.
This initiative appears to be bearing fruit, as Hang Seng Bank is reportedly in the early stages of selling real estate loan portfolios valued at over $3 billion. This comes in light of an 85% spike in loan disruptions related to real estate in Hong Kong compared to last year.
The banking sector in Hong Kong is under pressure due to one of the worst real estate downturns since the late 1990s financial crisis. There has even been discussion within the industry about the possibility of establishing “bad banks” to take over troublesome loans. The Fitch rating estimates the impact around $25 billion, based on the Hong Kong Monetary Bureau’s data.
As of June, Hang Seng Bank, which is around 63% owned by HSBC, had approximately HKD 3.2 billion in commercial real estate loans.
An HSBC representative mentioned, “All banks are always pushing for decisions that optimize their credit portfolios, manage risks, and consider the effects on their customers carefully.” They added, “Hang Seng makes its own decisions under its own governance.”
A spokesperson for Hang Seng refrained from commenting specifically on this report, noting that “banks will manage credit risk in their loan portfolios in accordance with international regulations and accounting standards,” which include timely loan classification, provisioning, and disposal.
Recently, HSBC has revamped Hang Seng’s leadership, shifting Diana Cesar, the chief executive of HSBC’s Hong Kong operations.
This month, the Hong Kong and international branches of the China Chamber of Real Estate and Commerce have suggested that the government establish a $20 billion fund aimed at investing in distressed properties to avert systemic financial risks.
Without a clear plan for managing bad debts, banks in Hong Kong often turn to their personal connections with private lenders for help in purchasing assets.
It seems HSBC is keen on speeding up the disposal process by having senior executives involved from London.
Under HSBC’s new oversight, there’s a focus on a comprehensive strategy rather than a piecemeal approach. To facilitate this, Hong Kong lenders have reached out to consultants for assistance in coordinating sales.
Hang Seng is looking to offload two portfolios backed by real estate from Hong Kong developers like Emperal International Holdings Ltd. and Tai Hung Fai Enterprise Co. There’s also a third portfolio involving properties spread across mainland China.
It’s worth noting that these transactions are still in their early stages and may evolve. Bloomberg News had previously indicated that Hang Seng is on the verge of selling one of these portfolios.
Following the late 1990s crisis, the Hong Kong Monetary Authority implemented several major measures to prevent the buildup of non-performing loans, including enhancing bank supervision and credit surveillance to guide sound capital allocation. However, these measures did not offer a definitive plan for handling bad debts, and many of the bankers who managed past cleanups have left the field, creating a knowledge gap.
There remains an open question regarding how closely HSBC’s directives will be adhered to. Hang Seng and the consulting firm have engaged various private credit companies, but reports suggest that neither party has yet provided clear guidance on next steps for securing loans.
