HKMA IRRBB: What’s new in the revised SPM IR-1

On 23 December 2025, the Hong Kong Monetary Authority (HKMA) issued the revised Supervisory Policy Manual IR-1 (SPM IR-1), marking the first major update to Hong Kong’s interest rate risk in the banking book (IRRBB) framework since 2018. The revised SPM IR-1 became effective on 1 January 2026 and the MA(BS)12A return for the position as of 31 March 2026 is the first submission subject to the recalibrated interest rate shocks.

Our flyer provides a concise summary of the proposed updates and what they may mean for banks operating in Hong Kong.

What’s covered in the flyer:

(1) Updated definition of retail loans and small business exposures

The updated definition expands eligibility for retail treatment. In particular, the small business exposure threshold increases from HK$100 million to HK$500 million, and an additional threshold test is introduced. In addition, certain types of exposures (e.g. real estate exposures) are excluded from the definition of retail exposure. This broadens the retail boundary and is expected to shift more borrowers from non-retail to retail treatment.

• Return reporting
  Retail and non-retail slotting differ under MA(BS)12A reporting. Exposures moved into the retail bucket will be captured under behavioral cashflows rather than contractual schedules, impacting timing and magnitude of reported cashflows particularly for portfolios without significant penalty.

• Behavioral model scope
  With more exposures captured as retail, even where the portfolio set does not expand, the retail boundary change may require recalibration of the conditional prepayment rates (CPR) or enhancement in model methodology.

• Retrospective application
  The revised definition is expected to be applied retrospectively, requiring banks to reassess existing portfolios under the new criteria, which will involve backfilling.

(2) Recalibrated interest rate shock scenarios

The consultation recalibrates the interest rate shocks across currencies, with stress magnitudes higher for most currencies and only a few unchanged or reduced, and it also introduces explicit shocks for MOP and an “others” currency bucket. 

The impacts extend beyond simple shock size increases:

• Economic value of equity (EVE) and net interest income (NII) sensitivity
  Larger shocks increase the decline in EVE and make NII projections more sensitive to repricing mismatches, behavioral assumptions and optionality.

• Impact on behavioral model
  The enlarged shock magnitudes will require model recalibration or additional sensitivity testing, particularly for banks whose behavioral models incorporate interest-rate scenarios. Nevertheless, even where models do not embed shocked scenarios directly, the higher stress magnitudes still affect EVE and NII through repricing gaps and optionality.

• Internal limits and hedging
  EVE and NII are the primary metrics for monitoring IRRBB, they move in opposite directions when rates change. Larger stress magnitudes increase the likelihood of the metrics sitting closer to internal limits under stress scenarios, which may trigger escalation or review. Significant movements in either metric can also prompt business or hedging adjustments, such as reducing embedded options in products or changing funding mix.

(3) Impact on behavioral models and data requirements

The consultation provides additional clarity on historical data expectations for non-maturity deposit (NMD) models, including a baseline of 10 years of data where available and supervisory notification or approval where shorter datasets are used.

(4) Clarification on exempted AIs

For overseas-incorporated banks that are exempted from the IRRBB standardized framework, an HKMA discretion clause is incorporated that the Authority may require such banks to incorporate the IRRBB standardized framework (i.e., MA(BS)12A reporting). Banks should maintain proactive dialogue with the regulator.

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