Hong Kong banks' rising exposure to the Chinese mainland requires close monitoring and cooperation with Chinese supervisors, but stress tests show they are well positioned to absorb potential losses, the IMF said on Wednesday.

As financial ties between Hong Kong and the mainland have deepened, banks' exposure to non-bank mainland entities have grown significantly since 2010, the IMF said.

A broad measure of banks' exposure to non-bank mainland China entities (known as NBMCE) has risen to 19 percent of total assets, the IMF said in a review of the Hong Kong economy.

This was in the low single digits in 2007, according to Hong Kong Monetary Authority (HKMA) data.

The NBMCE is used by the HKMA, the city's de facto central bank, to track loans by the territory's banks to entities in the mainland.

The NBMCE includes exposure to resident mainland affiliates for use outside of Hong Kong, lending of Hong Kong bank subsidiaries in the mainland, and borrowing by foreign companies for use in the mainland.

The IMF said Hong Kong's banking system was "well positioned" to absorb losses in adverse scenarios, such as lower growth in the mainland and Hong Kong, higher US interest rates and asset price shocks.

The IMF expects Hong Kong's economy to grow 3.75 percent in 2014, up from 2.9 percent in 2013 due to a recovering global economy. It said the main domestic risk for the city was a disorderly correction in property prices.

Reuters