Hong Kong banks asked to do stress tests on $90bn in outflows

HONG KONG: The Hong Kong Monetary Authority has asked banks in the territory to conduct stress tests on themselves to gauge their ability to withstand a $700 billion ($90.1 billion) outflow of deposits, it said on Friday.

Hong Kong's de facto central bank has asked local lenders to assume that half of the HK$1.38 trillion in customer deposits they added since 2008 will flow out within a year, it said in a statement.

"The HKMA has asked banks to conduct a stress test to demonstrate how deposit outflows could affect their funding positions," it said in a statement.

The HKMA added that the outflow was not its forecast or an estimate that such a scenario would happen.

Hong Kong banks' loan-to-deposit ratio rose to 81.7 percent in March this year, up from 73.3 percent at the same time in 2010. A rapid outflow of funds could drive this ratio up higher, raising the cost of funding for banks.

The HKMA's Chief Executive Norman Chan warned Hong Kong banks against growing their loan books too quickly earlier this month, saying that rates face upward pressure.

Bank of China (Hong Kong), the territory's No.3 lender, said on Wednesday its loan book grew by 19 percent last year, slower than the overall industry's 29 percent growth.

Copyright Reuters, 2011