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 Hong Kong Monetary Authority (HKMA) again intervened to buy nearly HK$5.9 billion (about $750 million).
Analysts believe that the interest rate spread between the United States and Hong Kong continues to widen. If the outflow of Hong Kong dollars can’t be stopped, the Hong Kong Interbank Offered Rate (HIBOR) may reach its cap of 2.5 percent.
According to data released by the Hong Kong Official Receiver’s Office on May 20,930 individual bankruptcy petitions were submitted in April, which is 7.15 times greater than the 130 petitions in March, and 45 percent higher than the 640 in April last year.
The same sharp increase was seen for the number of compulsory winding-up petitions presented by enterprises, which reached 68 in April, more than 8.7 times higher than the 7 filed in March, and double the 34 in April last year, going back to the level of May 2020, which was the highest since May 2009.
The number of takeover or bankruptcy orders issued in April this year was 389 or 2.7 times more than 105 in March.
In the first four months of this year, a total of 2,120 individual bankruptcy petitions were filed in Hong Kong, 19.27 percent down from 2,626 last year; and 143 compulsory winding-up petitions by enterprises, a decrease of 15.88 percent form 170 last year.
Due to the special work arrangement implemented by the Judiciary of Hong Kong, the relevant data in March and April 2022 were affected, said the Hong Kong Official Receiver’s Office.
In addition, on May 16, the Hong Kong linked exchange rate against the U.S. dollar again hit the HK$ 7.85 weak-side exchange guarantee during the Asia trading hours. The HKMA announced that it would once again intervene by purchasing HK$5.88 billion ($7.5 million). On May 18, Hong Kong’s bank balance had fallen to HK$319.99 billion ($40.78 billion). The HKMA bought $750 million U.S. dollars to defend its currency.
This was the fifth HKMA financial market intervention since the early hours of May 12, and amounted to HK$17.585 billion ($2.24 billion).
Stephen Shiu Yuk Yuen, a Hong Kong current affairs commentator, said HK$5.88 billion is the largest capital move in a day, the Hong Kong dollar interbank offer (HIBOR) is now very low, but if capital outflow continues, the interest rate will be pushed up.
The supply of Hong Kong dollars will be reduced if it keeps outflowing, then the HIBOR will increase or reach a cap rate of 2.5 percent, said Shiu.
Cap rate is one of the important terms of HIBOR-linked mortgage plans, which helps borrowers enjoy a more stable mortgage interest rate and higher control over their interest expenses.
For example, assuming that a property price in Hong Kong is HK$10 million (about $1.274 million) and the mortgage is HK$6 million (about $765,000), raising interest rates by one percent is equivalent to paying an additional HK$60,000 (about $7,647) per year, or HK$5,000 (about $637) per month, said Shiu.
UBS Group reported that the interest rate hikes and balance-sheet shrinks in the united States have flattened the interest rate gap between Hong Kong and the United States from the beginning of the year to about 0.7 percent now.
UBS expects that if HIBOR reaches a cap rate of 2.5 percent for three to six months, the Bank of Hong Kong will have a greater incentive to raise the most favorable interest rate (prime rate set by banks, usually related to the trend of U.S. interest rates), with an estimated increase of at least 0.125 percent.
News portal Hong Kong 01 quoted Lam Chun-wang, director of the research department of Shanghai Commercial Bank, as saying that the interest rate gap between the United States and Hong Kong continues to widen. At the current speed of capital outflows, it is estimated that the one-month HIBOR in the third quarter of this year is likely to rise to 1.2 percent.