With the financial performance of Hong Kong’s banking sector remaining relativelystable in 2016, China’s 13th Five-Year Plan and Belt and Road initiative, as well asadvancements in innovative technologies, offer major opportunities for banks in thecity to perform strongly in the future, KPMG’s latest annual survey finds.
Paul McSheaffrey, KPMG Partner and Head of Banking for Hong Kong, says: “Therehas generally been muted loan growth and margins have been relatively flat, butcosts have stayed flat and credit problems appear under control, which has left theoverall profitability of the sector relatively unchanged.”
As at the end of 2016, total loans and advances of the surveyed banks increased by3.4 percent from a year ago to HKD 7,357 billion. On average, net interest margindropped by a marginal 1 basis point to 1.58 percent, while the cost-to-income ratiostood relatively stable at 48 percent. The average impaired loan ratio increased from 0.52 percent to 0.64 percent at the end of 2016.
While overall profitability of the sector remains relatively stable, the future of HongKong’s role as an international finance centre is bright, with a number of opportunitiesfor banks.
Andrew Weir, Regional Senior Partner of KPMG Hong Kong, says: “Looking at thedetails of the China’s 13th Five Year Plan, opportunities for Hong Kong banking andthe broader financial services industry lie in the development of the Greater Bay Areaand the opening up of Southern China with closer integration of Hong Kong, Macauand Guangdong.”
“Also, Hong Kong’s role as a global offshore RMB finance and service hub gives it aprominent role in the Belt and Road initiative. As part of that, the deepening of thebond market, the development of project finance, and the general facilitation of Beltand Road investments provides Hong Kong with significant opportunities. With theBelt and Road initiative a major driver for the region, this is likely to lead to moredemand for green bonds and green-related financing, innovative project financing and supply chain financing.”
In addition, Hong Kong’s connections with China’s stock markets and its continueddevelopment as a wealth management hub present new avenues for growth, thesurvey highlights.
The survey also notes that digital innovation such as artificial intelligence (AI),cognitive computing and robotics are emerging disruptors which could help facilitategrowth.
Meanwhile, risk and regulation undoubtedly continues to be a major focus for banks in Hong Kong.
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