Hong Kong banks saw a boost in profits, while operating costs rose due to greater compliance of new regulations, according to KPMG’s 26th annual publication of the sector.
The report finds that the sector remained resilient in 2013, with healthy growth in both assets and net profit. Overall, the profitability of banks surveyed increased by 39 percent compared to 2012. Excluding notable one-offs the increase was 19 percent.
HSBC, Bank of China (Hong Kong) and Hang Seng Bank contributed 75 percent of the profit before tax of the locally incorporated licensed banks in Hong Kong. The asset base of financial institutions grew by 8 percent to HK$20 trillion.
The survey finds that despite the pressures banks face as a result of increasing regulations, the growth rate of non-interest income across all banks picked up in 2013, with double-digit growth of 11 percent (excluding HSBC’s gain from the sale of Ping An), compared to 5 percent in 2012.
The analysis highlights small improvements in NIM across the sector, however, banks are still impacted from the low interest rate environment.
Growth in non-interest income has strengthened, mainly because of fees related to loans and trade finance, however, this may not recur to the same degree.
Additionally, trading incomes are lower overall due to lack of demand from investors.
Meanwhile, total deposits from customers of locally incorporated licensed banks increased by 10 percent to HK$9 trillion.
“Banks continue to try and diversify their income base to maintain and enhance profitability in the persistent low interest rate environment," says Rita Wong, Partner, Financial Services, KPMG China.
"We saw growth for the banks mainly stemmed from trade finance, commercial lending and in loans for use outside Hong Kong. We think growth in trade finance may reduce in 2014 given increased focus on mainland China trade finance activities.”
Meanwhile, banks continued to experience strong loan growth in 2013. The survey results show an aggregate annual growth of 17 percent in loans and advances across all banks surveyed compared to 10 percent in 2012.
The strong growth was primarily a result of an increase in trade financing and demand for use of loans outside Hong Kong.
The overall loan-to-deposit ratio across all banks surveyed increased from 78 percent in 2012 to 84 percent in 2013, while that for the top 10 locally incorporated banks increased from 67 percent in 2012 to 70 percent in 2013.