The Hong Kong Monetary Authority announced a reduction to the minimum capital buffer required in a move that will inject up to HK$300 billion into a weakening economy hit by ongoing unrest.
The countercyclical capital buffer (CCyB) ratio reduction from 2.5 percent to 2 percent marks the first cut since 2015 and is estimated to release between HK$200-300 billion ($25-38 billion) of liquidity into the financial system. CCyB forms part of the Basel III regulatory capital framework to create a shock absorber in times of market stress.
«Economic indicators and other relevant evidence have signaled that the economic environment in Hong Kong has deteriorated significantly since June 2019,» said newly appointed HKMA chief, Eddie Yue, in a statement citing credit-to-GDP ratio and residential property price-to-rental ratio as among the indicators it observed.
More SME Support
The liquidity injection is particularly focused on supporting SME businesses and Yue said that the HKMA had established a lending coordination mechanism with plans to further discussions about implementation.
Among the initiatives that will be addressed include arrangements for principal payment deferrals and loan extensions; improving banks’ frontline staff understanding on policies supporting SMEs; and setting up an industry platform to collect SME views on such policies.
