Bank profits may take hit amidst protests

Asset quality will also weaken, according to analysts.

Hong Kong banks can expect tougher times ahead as profitability is likely to take a hit in response to the ongoing social unrest, according to S&P. Credit costs are also likely to rise as asset quality deteriorates.

Despite the rising credit risks, S&P noted that they should remain low and manageable for the sector, even with a significant deterioration in the economic outlook for Hong Kong. S&P earlier revised its forecast for Hong Kong's GDP growth to 0.2% in 2019 and 1.6% in 2020 in September this year, from 2.2% and 2.4%, respectively. The revised GDP growth forecasts are significantly lower than the 3% recorded in 2018.

The recent policy announcement on supporting small and midsize enterprises and residential mortgages could provide some cushion for the economy, the report added.

Also read: Hong Kong urged to boost $2b economic stimulus

“We do not expect the banking sector to materially relax its underwriting standards. We consider Hong Kong's banking industry risk to be the lowest among its peers, mainly aided by prudent regulations and proactive supervision,” said S&P Ratings.

Accordingly, the local banking industry has strengthened its capitalisation over the past two to three years through controlled exposure, regulatory tier-1 capital issuances, sufficient internal capital generation, and, in some cases, asset disposals. This provides banks with more buffer to absorb losses, said S&P.

“Over the past two decades, the Hong Kong banking sector's customer deposit base has remained quite sticky. As of end-August 2019, customer deposits rose by about 2% on a year-to-date basis, compared with about 5% growth in loans. Overall, the loan-to-deposit ratio remains healthy at about 75%,” the report stated.
 

Join Hong Kong Business community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!