HSBC flags 73% of Hong Kong commercial real estate loans as risky, nearly triple previous mark.

HSBC has marked 73% of its Hong Kong commercial real estate loans as risky, a significant increase from previous levels. This reflects concerns over the impact of the pandemic on the sector. The bank's upgrade of risk grades is expected to lead to increased provisions for potential losses, potentially affecting its profitability.

HSBC, Europe’s largest bank and Hong Kong’s biggest lender, has flagged nearly three-quarters of its commercial property loans in Hong Kong as risky, highlighting growing concerns amid a prolonged slump in retail spending and weak office demand. This alarming trend was reported by the Financial Times [1].

By the end of June, 73% of HSBC’s Hong Kong commercial real estate loan book—totaling $32 billion out of a $234 billion Hong Kong loan portfolio—was either classified as impaired or marked as bearing increased credit risk. This marks a sharp rise from less than 30% a year ago, signaling mounting financial pressures in the city’s property market [1].

The bank’s internal risk models, updated recently, showed that loans considered to have increased credit risk surged from $6.5 billion at the start of 2025 to $18.1 billion by mid-year. Meanwhile, loans deemed impaired also increased from $4.5 billion to $5.1 billion during the same period [1].

Hong Kong’s commercial real estate sector has been struggling amid a 20% drop in prime office rents since 2022 and record-high vacancy rates around 19%, according to Cushman & Wakefield. Analysts say the situation has put pressure on both large developers and smaller real estate companies [1].

The jump means that 73% of HSBC’s Hong Kong commercial real estate loans are either impaired or marked as having increased credit risk, up from less than 30% a year ago. HSBC also set aside $1.1 billion for expected credit losses in Q2, with $400 million allocated specifically for its Hong Kong commercial real estate exposure [1].

Industry experts highlight that much of HSBC’s commercial real estate exposure risk is concentrated in Hang Seng Bank, its local Hong Kong subsidiary. Hang Seng’s non-performing loan ratio hit 6.7% at the end of June—the highest since the 1999 Asian financial crisis—underscoring the difficulties faced by smaller and medium-sized developers [1].

Michael Makdad, an Asian financial analyst at Morningstar, noted, “there are a number of stressed real estate companies in Hong Kong… it is definitely flashing significant warning signs and has done so for a while” [1].

Despite the challenges, some analysts see signs that the property market may be stabilizing. Major office transactions by firms such as Jane Street and the Hong Kong Exchange hint at a possible recovery in demand [1].

HSBC CEO Georges Elhedery acknowledged the short-term hurdles but expressed confidence in the long-term outlook for Hong Kong’s real estate market. “In the medium to long term, we remain confident in the supply and demand dynamic in Hong Kong and the appeal of Hong Kong real estate at large and, therefore, remain constructive and optimistic,” he said [1].

References:
[1] https://slguardian.org/hsbc-flags-73-of-hong-kong-commercial-property-loans-as-risky-amid-market-slump/amp/