Revenue growth and loan portfolios are key focus for Hong Kong banks in 2015, says KPMG

Revenue growth and loan portfolios are key focus for...

Hong Kong banks may see an increase in non-performing loans in 2015, while revenue growth is another key challenge, says KPMG.


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Hong Kong banks may see an increase in non-performing loans in 2015, while revenue growth is another key challenge, says KPMG.  

Net interest margins are expected to stay under pressure, particularly in an ongoing low interest rate environment, while competition for deposits between banks will remain strong.

Paul McSheaffrey, Partner, Head of Hong Kong Banking, KPMG China, says: “We see some isolated signs of deterioration in the credit quality in the second half of 2014. There is also therefore a potential for loan and impairment charges for Hong Kong banks to increase in 2015 from the current low base.”

The deterioration is partly due to a weak global economy and slowing growth in mainland China, both ongoing concerns for the sector. 

“Overall exposure to non-bank mainland China business will continue to grow because of its importance to the banks, however we expect the growth rate will be slower in 2015, in the light of the increased supervisory focus and more prudent approaches by banks,” McSheaffrey adds.

In the first half of 2014, the top ten banks in Hong Kong (in terms of net profit of locally incorporated license banks in 2013) saw their average net interest margin stand at 1.68 percent, edging up 3 basis points compared to a year ago.

Meanwhile, regulatory pressures also remain a key focus for banks in Hong Kong.

McSheaffrey explains: “Most of the regulatory and compliance requirements that were launched after the global financial crisis have been or are close to being implemented, we don't expect any major new regulations to be issued in 2015. However, regulatory scrutiny has increased. Additionally, we expect more regulatory requirements related to technology risk or cyber security, as mobile banking services become more popular.”

Given the various challenges to revenue growth, cost cutting will be a key focus for the banks in order to maintain their profitability and stay competitive.

McSheaffrey concludes: “Simplification of operating models, greater levels of offshoring, and strategic initiatives to improve productivity will continue to be key priorities in 2015. Regulatory and compliance costs and increased competition will continue to put pressure on cost-to-income ratios. As there is a potential for non-performing loans to increase in 2015, banks also need to carefully manage their portfolios.”  


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