HK banking sector remains resilient, loan quality shows sign of deteriorating

4 Feb, 2021 20:43
source: Singularity Financial

Singularity Financial Hong Kong February 4, 2021 – The HKMA (Hong Kong Monetary Authority) on Thursday revealed that the average pre-tax profit among retail banks feel by 29.4 percent over 2020.

The net interest margin narrowed to 1.18 percent in 2020 from 1.63 percent in 2019, while total loans grew just 1.2 percent in 2020, compared to 6.7 percent growth in 2019.

As of end-September 2020, the classified loans ratio – the ratio of bad and doubtful loans – has risen to a four-year high of 0.84 percent, up from 0.57 percent in 2019.

“Local banks will continue to face a challenging time this year because the [ongoing] pandemic is [piling weight on] the city’s worst recession on record,” said HKMA deputy chief executive Arthur Yuen at a press conference. “We are discussing with the banks to find a way which would safeguard the sector while helping the economy to recover.”

Hong Kong’s GDP shrank 3 percent in Q4, ending 2020 with a 6.1 percent full-year decline. The last time a similar decline was seen was the 5.1 percent fall in GDP in 1998 amid the Asian Financial Crisis.

Nevertheless, capital ratio and deposits of Hong Kong banks remained strong, Yuen said. “The banking sector overall is still holding well, as the capital ratio stood at 20.3 percent and the total deposits increased 5.4 percent last year, among the highest worldwide. The local banking sector is still very stable and resilient.”

According to Yuen, Hong Kong is also not seeing fund outflows as a result of the national security law, as observers had expected.

He said banks had no legal obligation to comply with US sanctions imposed in response to the law, but that they must consider any risk factors in their customer relationships and the HKMA would respect these decisions.

Yuen said that recent account closures of pro-democracy activists and lawmakers arrested under the national security law were not for political reasons. “Hong Kong banks must comply with requests to help investigation by law enforcement agencies,” he said.

The HKMA’s focus areas for the year ahead include credit risk, cyber and operational resilience, digitalisation, financial crime, benchmark transition, regtech and suptech initiatives, and green and sustainable banking.