A select group of Hong Kong bankers is now using last-resort tactics to clean up a HK$200 billion mountain of bad debt, the city's largest in two decades.
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Hong Kong Banks Hire Specialists to Tackle HK$200 Billion in Bad Loans
Hong Kong lenders are aggressively expanding specialized teams to manage a HK$200 billion (US$25.6 billion) pile of soured loans, a situation that has driven the city's distressed debt ratio to its highest level in 20 years.
"There’s a clear shift from waiting to acting," said Derek Lai, a senior partner on the global restructuring leadership team at consulting firm EY-Parthenon. "Decisions are still case by case, but the tilt is now towards taking the hit and moving on, especially for commercial property loans."
At least six lenders have increased their number of "special asset bankers," with Bank of East Asia and the Hong Kong branch of United Overseas Bank nearly doubling their headcount since 2024. Bank of China (Hong Kong) and Hang Seng Bank have also expanded their workout teams to handle a caseload that has more than doubled. These teams are increasingly appointing receivers to seize and sell assets, with Bank of China naming PricewaterhouseCoopers to offload the HK NEO tower in Kowloon to recover on a HK$5.5 billion loan, while Bank of East Asia appointed EY-Parthenon to sell the One Bedford Place office tower.
The aggressive cleanup is a strategic move by banks to free up capital for new lending as other parts of the Hong Kong economy show signs of recovery. By resolving the bad debt overhang, lenders aim to strengthen their balance sheets, even if it means crystallizing losses on loans tied to the city's struggling commercial real estate sector.
A 20-Year High in Distressed Debt
The root of the problem lies in the city's commercial property market, which continues to grapple with oversupply and high vacancies. The city's overall non-performing loan ratio climbed to 2.01 percent at the end of last year, the highest since 2004. While Hong Kong's residential property market has started to rebound, the commercial segment remains weak, with the office vacancy rate standing near an all-time high of 16.8 percent as of March, according to data from CBRE Group. This has put immense pressure on landlords and the banks that financed them.
The Rise of the Workout Specialists
In response, banks are bolstering their recovery and collection departments, sometimes called special credit or workout teams. These bankers, whose compensation can be 20 percent lower than front-office roles, are tasked with the unglamorous job of loss containment and recovery. The work involves intense pressure and long hours, as they shift from negotiating with troubled borrowers to pushing them into liquidation. The expansion of these teams signals a recognition by the banks that the "Hong Kong Approach," a tradition of supporting firms through difficult periods, has met its limit in the face of the current property downturn.
This article is for informational purposes only and does not constitute investment advice.
[1] Report Says Hong Kong Banks Boost Hiring to Cut Up to HKD200B in Bad Loans[2] Kansas City's 35 fastest-growing banks by real estate lending[3] Report Says Hong Kong Banks Boost Hiring to Cut Up to HKD200B in Bad Loans - AASTOCKS.com[4] Hong Kong’s bad-debt bankers ramp up fire sales, liquidations - The Business Times[5] Hong Kong’s bad-debt bankers ramp up fire sales, liquidations - The Edge Singapore
