Hong Kong as a Global Commercial Banking Center - Part 2

 

Hong Kong’s Position vis-a-vis Regional Counterparties

Part 1 of this two part post here. 

Now let’s use the HKMA data to look in more detail at net cross-border positions.

First, let’s look at the net border positions by regions.

A positive number means that HK resident banks have provided net funding to residents of the region. A negative number means that the “region” has provided net funding to HK resident banks.

As disclosed in the HKMA table, HK has cross-border relationships with 111 identified countries and entities. Countries with smaller amounts are not individually identified but aggregated into “other” categories. This is a pretty broad reach.

As might be expected, roughly two-thirds of HKSAR’s aggregate cross-border position is to Developing Countries. No surprise. Banks go where the business opportunities are.

This chart does not tell the full story.

Within each region some “countries” have net positive positions and others have net negative positions.

Hong Kong’s Position vis-a-vis “Countries”

Let’s go a bit deeper and take a look at the positive net positions by residents of countries.PPNote that word “residents”. It means any entity or individual in a country irrespective of nationality.

The above chart looks at those “countries” who have benefited from extensions of credit.

The percent column shows the percent of the USD 360 billion received by residents of each country.

Note this adds to more than 100% because there are some countries whose residents are net providers of funds to HK resident banks.

The largest of these are residents of Spain (USD 9 Billion), Russia (USD 10 billion) the Netherlands (USD 12 billion), Macao SAR (USD 12 billion) and Taiwan (USD 24 billion). 

The sector column shows whether the banking or non-banking sector received the majority of the amount.

Just 8 “countries” account for almost all the USD 360 billion.

As is clear from the above data, residents of the USA received the largest share-- some USD 94 billion or 26% of the USD 360 billion the HK provided the rest of the world.

Note that is approximately twice the net amount provided to the PRC.

If we assume that in general interbank lending is for liquidity management purposes (deposit placement) and that non financial sector lending is generally for capital expenditure or working capital, then the economic benefit of the latter should generally be greater.

The USA non-bank sector received 81% of USD 94 billion.

Compare that to the PRC where roughly 91% of the net amount was to the bank sector.

Let’s look at Gross Claims.

The chart above shows the five largest gross cross-border Claims on the non-bank sector by foreign currencies only and the second, including the HK$.

These “countries” represent more than 60% of the total gross cross-border Claims on the non-bank sector by HK resident banks.

On this basis, the PRC is first. Note that 30% of the PRC’s total consists of HK$ denominated lending.

When you compare these amounts to the net positions, it’s clear that there are significant deposits from PRC entities in the HKSAR. And more lower deposits from residents of the USA.

Are these amounts economically significant in the overall domestic financing of either country?

On an aggregate basis, not really. But note that caveat.

According to the US Federal Reserve, US banks’ Commercial and Industrial loans totaled USD 2, 345 billion as of 31 December 2019.

According to the PBOC, PRC financial institutions had extended foreign currency loans to the non-financial and government department sector equivalent to USD 13,684 billion as of year end 2019. 

But there is a bit of a caveat on the “not really”.

If the lending provided in the USA or in the PRC is targeted to foreign companies that have limited access to domestic bank financing, it could be a critical source of funding.

Beyond that HK provides funding—albeit smaller amounts—to developing countries in Africa and Asia that are no doubt more critical to those nations. 

And as well HK is a congenial venue for funds placement for a variety of countries. It should be noted that PRC residents have placed roughly 24% of aggregate bank and non-bank deposits in HK.

In summary HK plays a major role among global commercial banking centers. Punching well above its weight compared to major countries.

Whether HK will be able to maintain this position isn’t clear at this point.

اهلا وسهلا يا ابي المشاكل

مديرنا الجديد للدعاية

BMB Launches Suit Against Related Parties to Recover US$ 6.6 Million

Last Monday Bahrain Middle East Bank (BMB) confirmed the accuracy of Al Ayam newspaper report that the bank had instituted legal proceedings against 6 Kuwaitis and 2 Egyptian Companies in the Bahrain Center for Dispute Resolution.

The confirmation came via a public disclosure on the Bahrain Bourse website.

The bank seeks to recover US$ 6.6 million for a “financing loan” plus 10% interest from 4 June 2016 to the date of payment plus its other costs.

The defendants are the bank’s former Chairman, Mr. Wilson S. Benjamin; prior Vice Chairman Abdullah Ali Khalifa Al-Sabah; Tariq Ibrahim Al-Faris; Majeed Mansour Al-Sarraf; Al-Sawari Holding Company, and Al-Fawares Holding Company all of Kuwait. And Egyptian companies Lotus Investment and Real Estate Development , And Lotus Marketing Centers.

From what I’ve been told in addition to the Mr. Benjamin and Sh. Abdullah A.K. Al-Sabah—both of whom represented Al-F on the board, the other defendants are also associated with AlFawares.

That fact and the amount suggests that this “case” may well have to do with the Installment Sales Receivable Loan. That loan was a long standing related party transaction by virtue of the guarantee given by AlF.

And perhaps as well by other “virtues”. 

You’ll recall that in earlier posts I questioned why the guarantees hadn’t been called on the ISRL as well as how the 2017 write off in the loan of a major shareholder of the bank passed through auditor sign off and CBB approval.

In cases with Kuwaiti individuals and entities, savvy litigants know the value of locking down assets as soon as possible.