Hong Kong Banks Record Strong Profits, Plan To Reinvest In Technology And Innovation To Drive Growth, Finds KPMG Report
26 June 2018 | Hong Kong’s banks saw strong profitability in 2017 and are looking to reinvest in technology and innovation to drive growth and remain competitive, KPMG’s latest annual report finds.
KPMG’s 30th annual Hong Kong Banking Report reviews the overall sector performance and provides an analysis of key metrics for the top 10 locally incorporated banks in Hong Kong in 2017.
The report finds that total assets of all surveyed licensed banks grew by 8.1 percent, compared to 5.6 percent growth in 2016, while operating profit before impairment charges increased by 13 percent year-on-year to HK$229 billion from HK$203 billion.
Strong portfolio loan growth, decreasing cost-to-income ratios and improving credit quality and net interest margins led to robust revenue growth and higher profitability for the surveyed banks in 2017.
Paul McSheaffrey, Hong Kong Head of Banking & Capital Markets, KPMG China, says: “We continue to see interest rates rise in the US – with HKD rates also expected to increase in the future – which could lead to higher margins across the sector. Credit losses have decreased and remain at a low level, and we have seen significant year-on-year loan growth, indicating that banks are in a relatively healthy state and will continue to grow their assets and loan books.”
The average net interest margin across the surveyed banks increased to 1.63 percent as at the end of 2017, an increase of 6 basis points compared to 2016, while the average cost-to-income ratio of the surveyed banks improved to 42.5 percent from 47.9 percent in the previous year. The average impaired loan ratio for the top 10 banks decreased to 0.68 percent from 0.82 percent in 2016.
Meanwhile, the surveyed banks’ total loans and advances increased by 14.9 percent year-on-year to HK$8,468 billion in 2017. “Some of this growth was due to the opportunities arising from the Belt and Road Initiative and the development of the Greater Bay Area, as well as strong demand in the property market,” says Rita Wong, Partner, Financial Services, KPMG China.
Another significant development is the recent introduction of a new licensing regime for virtual banks in Hong Kong. This is making the banking landscape more competitive as non-traditional players seek to apply for virtual bank licenses and provide other financial services.
Wong adds: “These new entrants should provide significant impetus for traditional banks to innovate, adopt new technologies, forge strategic partnerships and further develop their online and mobile platforms to enhance their service offering.”
The report also states that allowing technology companies to set up virtual banks is likely to significantly raise standards in the industry and enhance the sophistication of the technology used.
McSheaffrey concludes: “With a number of banks indicating that they increased their spending on innovation in 2017, we expect digitisation and automation to continue to be a key focus in order to manage costs, improve operational efficiency and remain competitive.”
“Many of these banks will also seek to invest in opportunities related to the Belt and Road Initiative and the Greater Bay Area in order to access new markets and products, expand their customer base and drive growth.”
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