The Rising Strain on Hong Kong Property Loans

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 Recent headlines claimed “$35 billion of bad loans at HSBC Hong Kong”  but that figure isn’t supported by the data.  The truth is subtler yet far more telling. 

Hong Kong’s property market slump is squeezing bank balance sheets, exposing credit fragilities and testing regulators’ ability to contain contagion.

This commentary corrects the record, explores what’s really happening inside HSBC’s Hong Kong loan book, and maps the early-warning signs for investors, entrepreneurs, and policymakers watching Asia’s financial pulse.

The Headlines vs The Facts

While the headlines claim $35 billion of bad loans, the data doesn't form part of any official fillings.  What is verifiable though is:
  • Hang Seng Bank (63% owned by HSBC) reported HK$25 billion (~US$3.2 billion) in impaired property loans — up 85% YoY.
  • The entire Hong Kong banking system holds around US$25 billion in non-performing loans — a two-decade high.
  • HSBC has US$32 billion in Hong Kong commercial real-estate (CRE) exposure, and 73% of that book is now flagged as “elevated credit risk or impaired.”
That means roughly US$23.4 billion of HSBC’s Hong Kong CRE portfolio sits in the higher-risk zone.


Lessons From The Subprime Crisis

The comparisons to 2008’s U.S. subprime crisis are natural — both involve property-backed loans, leveraged banks, and investor nerves. But while there are echoes, the underlying mechanics are fundamentally different.

The 2008 Subprime Crisis in Brief

  • In the early 2000s, U.S. mortgage lenders issued huge volumes of subprime loans — mortgages to borrowers with weak credit and little verification.

  • These loans were packaged into mortgage-backed securities (MBS) and sold globally.

  • When interest rates rose and home prices fell, defaults spiked, and the MBS market collapsed, triggering a chain reaction:

    • Investors couldn’t price risk.

    • Interbank lending froze.

    • Major institutions (Lehman Brothers, AIG) failed, leading to a global credit contraction.

  • The contagion wasn’t just about bad loans — it was about the opacity and leverage in the financial system.

What’s Happening in Hong Kong Is Different

  • Nature of the risk:
    Hong Kong’s problem is concentrated in commercial property valuations, not residential subprime mortgages. The loans are to corporate developers and property investors, not mass retail borrowers.

  • No securitisation chain:
    Unlike 2008, these loans aren’t being repackaged into opaque derivatives. They largely sit on the balance sheets of the banks that originated them — making risk visible and measurable.

  • Capital buffers and regulation:

    • In 2008, average Tier 1 ratios for big banks were around 8%.

    • Today, Hong Kong banks hold CET1 ratios above 17%, and total capital ratios around 24%.

    • Regulators conduct regular stress tests that assume large drops in property values — a safeguard that didn’t exist pre-2008.
      (HKMA, 2025 data)

  • Policy readiness:
    The Hong Kong Monetary Authority (HKMA) and global central banks have playbooks from 2008. Liquidity tools, swap lines, and coordinated interventions can be deployed far faster if cracks widen.

  • Investor psychology:
    The market understands property cycles better now. 2008 was defined by denial until collapse; 2025 is defined by transparency and provisioning before contagion.

What Could Still Go Wrong

Even with stronger safeguards, the risk is in feedback loops:

  • A prolonged downturn in property values → falling collateral → higher provisions → tighter lending → slower growth.

  • That sequence can’t create a 2008-style meltdown, but it can still drag on profitability, liquidity, and market confidence across Asia’s banking sector.


In short 2008 was about invisible risk and leverage; 2025 is about visible risk and valuation.
This time, the system is better capitalised and more transparent — but that doesn’t make it painless. It just means the shock is more likely to be contained than catastrophic.

Closing Thought

Hong Kong’s property market isn’t just a local story — it’s a barometer for global liquidity and risk sentiment.

The numbers show resilience for now, but with 73% of HSBC’s CRE loans in the “risky” zone, this is no small signal.

Whether 2025 becomes a controlled clean-up or a regional ripple depends on how fast banks can work through these loans without triggering fire sales.

Stay tuned — this one has all the hallmarks of a cycle turning point.

Prefer Audio? 

Now you can listen to Karen's analysis of this commentary on Business and Wealth Strategy Podcast


A definition of words and phrases used in this blog can be found in our Main Glossary

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