Monetary Authority Announces Countercyclical Capital Buffer Ratio for Hong Kong

The Monetary Authority announced today (3 May) that the countercyclical capital buffer (CCyB) ratio for Hong Kong remains unchanged at 1%.

Mr Eddie Yue, the Monetary Authority, said, "Quantitative indicators suggest that overheating risks in Hong Kong are well contained. Under the framework that has taken into account the Positive Neutral CCyB introduced on 1 April 2024, a 1% CCyB ratio should be maintained for Hong Kong when systemic risks are neither subdued nor elevated. It is therefore appropriate to keep the CCyB ratio at 1% now and continue to monitor the situation closely."

Further details of the decision may be found in the Announcement of the CCyB to Authorized Institutions on the HKMA website.

Background

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 2023Q4 data and the Positive Neutral CCyB¹ according to the revised formula, signals a CCyB of 1%. The projection based on all available data suggests that the indicative buffer guide would likely signal a CCyB of 1% when all relevant 2024Q1 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. Quantitative indicators suggest that overheating risks in Hong Kong are well contained. Under the framework that has taken into account the Positive Neutral CCyB introduced on 1 April 2024, a 1% CCyB ratio should be maintained for Hong Kong when systemic risks are neither subdued nor elevated. It is therefore appropriate to keep the CCyB ratio at 1% now and continue to monitor the situation closely.

The CCyB is an integral part of the Basel III 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 against system-wide risks. 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.

¹ Under the Positive Neutral CCyB approach, authorities aim for a positive CCyB when risks are judged to be neither subdued nor elevated. Please refer to https://www.bis.org/publ/bcbs_nl30.htm for more information.