Hong Kong financial institutions need to overhaul their current risk management frameworks to accommodate the accelerating expansion of private credit within the local market. In its 2026 banking report, KPMG highlighted that the Hong Kong Monetary Authority (HKMA) has raised alarms regarding the swift growth of this sector and its broader implications for systemic stability. Consequently, regulatory bodies are moving away from broad, fund-level assessments and are increasingly demanding detailed look-through analyses that evaluate individual underlying exposures.
Conventional risk appetite parameters often fall short of capturing the distinct operational traits of private credit. These specialized exposures carry inherent risks regarding asset illiquidity, concentration volatility, reputational vulnerability, and severe valuation ambiguities. Evaluating these portfolios accurately continues to be a major obstacle for the industry, as reported net asset values from private credit funds routinely lag behind real-time market dynamics by a few months. Furthermore, a bank’s capacity to verify these figures independently varies drastically.
This environment places a heavy burden of proof on internal oversight mechanisms. KPMG cautioned that financial institutions must critically review whether their existing valuation governance is truly equipped to handle these complexities, regardless of whether their exposure stems from direct book investments or through the underlying holdings of their client base.
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