It is worth noting, however, that this risk persists because a large part of 6 / 19  BIS central bankers' speeches  promised projects in 2015 were due to be delivered between the last quarter of 2016 and the year 2017. Lately, there has been an increase in the down payment required by the banks to grant a mortgage loan, which could result in more withdrawn promises by those households that were unable to meet the necessary savings to comply. Profitability of the banking system has dropped, as interest spreads have reduced their contribution. This can be explained by a change in composition of the credit portfolio towards lower relative return products—fewer consumer and more mortgage loans—and by the migration towards less risky clients, who are offered lower interest rates. At the same time, the capitalizations of the first half of 2016 drove up the banking system’s capital adequacy ratios (CAR), strengthening their position to deal with adverse economic scenarios. In fact, stress tests indicate that banks have the sufficient capital to face severely stressful conditions. All in all, capital gaps are similar to those in comparable countries. Although several capital increases have been made lately, no changes in banks’ dividend withholding policies have been observed that would allow increasing the capital base endogenously. In an international context, the CAR level of the banking system remains below the 25th percentile in both OECD countries and in the region.
Rumors abounded and the shorting of the Hong Kong dollar ahead of the weekend had become a weekly affair. In the first half of August, Hong Kong’s GDP growth for the first quarter was revised down to - 2.8%. Wall Street was down sharply. The yen fell to over 147 against the US dollar. On the approach of the long weekend in the middle of August, rumors of a devaluation of the RMB and/or the abandoning of the Hong Kong dollar’s link with the US dollar intensified, risking the creation of panic and a breakdown of confidence in the currency. Fact number five: there had been much selling pressure on the Hong Kong dollar in the first half of August. In accordance with the discipline of the currency board arrangements, the HKMA would have had to sell foreign reserves and buy Hong Kong dollars passively. This would have created a serious shortage in the Hong Kong dollar monetary base, thus sending interbank interest rates sharply higher and the stock market sharply lower. Given, however, the need to fund the budget deficit for this financial year, the opportunity was taken to switch some of our accumulated fiscal reserves held in foreign currencies back into Hong Kong dollars, leaving the monetary base and therefore interbank interest rates largely unchanged. The amount of Hong Kong dollars absorbed in this manner was large, exceeding the $ billion accumulated by the hedge funds.