The Hong Kong Monetary Authority (HKMA) has denied rumors that local banks are planning to set up a "bad bank," The Standard reported Thursday.

The de facto central bank said it has no such plans and understands local lenders have no such intention either, according to the report.

Bloomberg News earlier reported that rising non-performing loans at Hong Kong lenders have prompted some in the industry to explore the idea of establishing a "bad bank" to absorb distressed debt.

The report, citing people familiar with the matter, said preliminary discussions have taken place among major banks, including Hang Seng Bank (HKG:0011) and Bank of Communications (HKG:3328), with advisory firms recently engaged to explore the possible formation of a special vehicle.

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