Hong Kong bankruptcy filings hit new high in April, HKMA bought nearly $7.5m to defend currency
Analysts: U.S.-Hong Kong Interest Rate Spread Continues to Widen, HIBOR May Hit Cap Rate
Individual bankruptcy filings jumped to nearly 1,000 in April, a new high in Hong Kong since May 2020. At the same time, the Hong Kong dollar suffered the largest sell order, and the Monetary Authority of Hong Kong (HKMA) again stepped in to buy nearly HK$5.9 billion (about $750 million).
Analysts believe that the interest rate differential between the United States and Hong Kong continues to widen. If the outflow of Hong Kong dollars cannot be stopped, the Hong Kong Interbank Offered Rate (HIBOR) could reach its ceiling of 2.5%.
According to data released by Hong Kong’s Office of the Official Receiver on May 20, 930 individual bankruptcy petitions were filed in April, up 7.15 times from the 130 petitions in March and 45 percent up from the 640 in April last year.
The same strong increase was seen for the number of compulsory liquidation requests submitted by companies, which reached 68 in April, more than 8.7 times more than the 7 filed in March, and double the 34 in April of last year, rising to the May 2020 level, which was the highest since May 2009.
The number of takeover or bankruptcy orders issued in April this year was 389, up 2.7 times from 105 in March.
In the first four months of this year, a total of 2,120 individual bankruptcy petitions were filed in Hong Kong, down 19.27% from 2,626 last year; and 143 compulsory liquidation requests by companies, a decrease of 15.88% compared to 170 last year.
Due to the special working arrangement put in place by the Hong Kong judiciary, relevant data in March and April 2022 was affected, the Hong Kong official receiver’s office said.
In addition, on May 16, the Hong Kong-linked exchange rate against the US dollar once again reached the low-side exchange guarantee of HK$7.85 during Asian trading hours. The HKMA said it would step in again by buying HK$5.88 billion ($7.5 million). By May 18, Hong Kong’s bank balance had fallen to 319.99 billion HK dollars ($40.78 billion). The HKMA bought US$750 million to defend its currency.
It was the HKMA’s fifth intervention in the financial market since the early hours of May 12 and amounted to 17.585 billion Hong Kong dollars ($2.24 billion).
Stephen Shiu Yuk Yuen, a Hong Kong news commentator, said HK$5.88 billion was the biggest one-day capital movement, the Hong Kong Dollar Interbank Offering (HIBOR) is now very low, but if capital outflows continue, the interest rate will be pushed up.
The supply of Hong Kong dollars will be reduced if it continues to exit, so HIBOR will rise or hit a cap rate of 2.5%, Shiu said.
The cap rate is one of the important terms of HIBOR-linked mortgage plans, which helps borrowers enjoy a more stable mortgage interest rate and better control over their interest expenses.
For example, assuming a property price in Hong Kong is HK$10 million (approximately $1.274 million) and the mortgage is HK$6 million (approximately $765,000), raising interest rates 1% interest is equivalent to paying an additional HK$60,000 (about $7,647). per year, or 5,000 Hong Kong dollars (about $637) per month, Shiu said.
UBS Group said interest rate hikes and balance sheet reductions in the United States have flattened the interest rate differential between Hong Kong and the United States since the start of the year to around 0. .7% now.
UBS expects that if HIBOR caps at 2.5% for three to six months, Hong Kong Bank will have more incentive to raise the most favorable interest rate (prime rate set by banks , generally tied to the trend in US interest rates), with an estimated increase of at least 0.125 percent.
The Hong Kong 01 news portal quoted Lam Chun-wang, director of the Shanghai Commercial Bank’s research department, as saying that the interest rate gap between the United States and Hong Kong continues to widen. At the current rate of capital outflows, the one-month HIBOR in the third quarter of this year is estimated to reach 1.2%.