HKMA Maintains Current List of Domestic Systemically Important Banks

The Hong Kong Monetary Authority (HKMA) has completed its annual assessment of Domestic Systemically Important Banks (D-SIBs) and decided to maintain the list from the previous year, according to a recent announcement. The list remains consistent with that published on December 29, 2023, indicating stability in the systemic importance of the designated institutions.

Higher Loss Absorbency Requirements

Under the D-SIB framework, each designated institution must incorporate a Higher Loss Absorbency (HLA) requirement into its regulatory capital buffers within 12 months following formal notification. The HLA requirement, expressed as a percentage of Common Equity Tier 1 (CET1) capital relative to risk-weighted assets, ranges from 1% to 3.5%, depending on the assessed level of systemic importance. Notably, there has been no change in these requirements compared to the previous year.

D-SIB Framework and Rationale

The regulatory framework for D-SIBs in Hong Kong is aligned with the Basel Committee on Banking Supervision's guidelines, enabling the HKMA to designate institutions as D-SIBs based on their systemic importance. The primary goal of imposing an HLA requirement is to reduce the likelihood of these institutions becoming non-viable, thereby safeguarding the local financial system and economy.

Implementation and Impact

Designated D-SIBs are allocated to different HLA “buckets” based on their systemic importance, with five potential buckets ranging from 1% to 3.5%. Although only the first four buckets have been populated, the framework includes a 3.5% bucket to discourage further systemic significance. The HLA acts as an extension of the Basel III Capital Conservation Buffer, imposing restrictions on discretionary distributions if a D-SIB's CET1 capital ratio falls within the extended buffer range.

For more information, please visit the HKMA's official press release.