HSBC Research published a report indicating that recently investors have been paying more attention to Hong Kong banks regarding their exposure to Shanghai New World (00017.HK). Currently, the bank's Crediting Analyst estimates that Shanghai New World's capital structure may not improve rapidly, but at the same time, banks will not immediately regard it as a potential defaulting company.

HSBC Research pointed out that as of the end of June last year, Shanghai New World had assets worth 445.2 billion HKD, with bank loans, outstanding Bonds, and perpetual bonds amounting to 126.7 billion, 24.9 billion, and 36.3 billion HKD respectively. The outstanding bank loans account for about 1.3% of the total industry loans or 7.8% of commercial real estate loans in the banking sector. Since approximately 86% of Shanghai New World's interest-bearing debt is denominated in HKD and USD, the bank believes that most borrowing is drawn in Hong Kong. Among the banks, BOC HONG KONG (02388.HK) is expected to have a significant proportion of property development loans, thus the risk may be higher than that of its peers.

HSBC Research's baseline scenario predicts that Hong Kong banks will not categorize their exposure to Shanghai New World as non-performing loans before the end of 2024 or 2025. If the banks are willing to provide Refinancing, it is believed that Shanghai New World will have time to divest some Assets and gain Shareholder support.

Under the pessimistic scenario predicted by the bank, if Shanghai New World's Crediting rating is downgraded, the non-performing loan ratio in the banking system would rise by 1.3 percentage points to 3.3%. If banks make provisions for 50% of the newly added non-performing loans within two years, the estimated negative impact on annual earnings for BOC HONG KONG and East Asia (00023.HK) would be about 11% and about 24% respectively.