In its latest financial system stability assessment published on Wednesday, the international group noted that sound policies, ample buffers and strong oversight have kept the system strong.
However, it identified extensive linkages to the mainland, stretched real-estate valuation, and exposure to shifts in global and domestic risk sentiment as the main risks for the city’s economy.
“Risks to the financial system can manifest from a prolonged Covid-19 pandemic, a further slowdown in Mainland China, a sharp rise in global risk-premia compounded by escalating US-China tensions, and a sharp housing market correction,” it said in the report.
The IMF added that there are also pockets of vulnerabilities – in foreign bank branches, investment funds, households, and non-financial corporates.
Its recommendations include enhancing oversight over banking groups that have both foreign branches and local subsidiaries in Hong Kong, as well as monitoring people’s debt repayment capacity.
The group also highlighted the importance for Hong Kong to preserve its rule of law, saying it is directly linked to public confidence in its financial sector.
“Hong Kong SAR’s competitiveness, as a major international financial center has depended on its sound rules and regulations, which have been adapted to international standards and best practices. The Hong Kong SAR authorities should continue to preserve the rule of law and strengthen the high-quality regulatory framework, so that solid foundation for competitiveness in its financial sector is preserved,” the report noted.
In response, the SAR government welcomed the report, saying it reaffirmed Hong Kong’s position as an international financial centre with a resilient financial system, sound policies and robust regulatory and supervisory frameworks.
Financial Secretary Paul Chan said the city will continue to reinforce its core strengths, use its unique advantages and identify new areas of growth to ensure long-term competitiveness and prosperity.