Hong Kong banks vulnerable to European slump : IMF

Hong Kong might need to support some of its banks and deposits in case Europe's sovereign debt crisis worsened and triggered a global economic slump.

Nigel Chalk, the International Monetary Fund's China mission chief told Bloomberg TV a  ''very bad scenario'' would require the government to ''perhaps guarantee some of the deposits in the banking system as they did in 2008 in the wake of Lehman Brothers.'' The fund said in a report released today, that it saw a low probability of such a situation coming to pass.

Hong Kong would need to be ready to offer ''significant and immediate'' fiscal stimulus that could include tax cuts, subsidies for the poor and rolling back some property curbs, the IMF report said. Recession was ''possible'' for the city on deteriorating exports and the government would ease property curbs in the event home prices slumped, financial secretary John Tsang said this week.

According to Chalk, a worsened global economy could push Hong Kong into recession again, requiring strong fiscal stimulus.

The report added IMF expected Hong Kong's economic growth to slow to 4 per cent in 2012, down from 5.75 per cent this year, on weaker export demand. Chalk said in the event of a global slump, the country could end up with a growth rate of somewhere close to zero and maybe negative.

Hong Kong narrowly dodged a recession in the third quarter with 0.1 per cent growth from the previous three months, with low unemployment and tourists from China boosting consumption while Europe's crisis hit exports. Chief executive Donald Tsang had last month said the city may see ''a couple of quarters of bad times'' and a slowdown in growth to 2 per cent next year, down from an official estimate of 5 per cent in 2011.