Hong Kong banks' lending linked to mainland China increased 1% quarter over quarter in the first quarter, the first rise in two years, Fitch Ratings said in a Thursday release.

The increase corresponds to the total sector loan growth of 1.4% in the first five months of 2025, Fitch said.

Total loan expansion this year will continue to be gradual given current economic challenges, according to Fitch.

Hong Kong banks' mainland China exposure (MCE) declined to a low of 24% of overall banking sector assets last year, with the share of loans in the MCE composition dropping to 50%, Fitch said.

The more subdued exposure reflects Hong Kong lenders' safer position towards mainland China-tied borrowings and weaker credit demand.

The bounce in mainland China-linked lending stems from a moderate rise in asset quality and a move toward state-owned entities, which could reduce credit risk, Fitch said.

Meanwhile, Macau banks' gross MCE rose 1% last year, with greater claims on Chinese banks countering a drop in mainland China-related lending.