Hong Kong banks posted the slowest profit growth in three years as lower net interest margins and rising bad debts wiped out asset management income.
Total pre-tax profits of the city’s 30 retail banks rose 8.4 percent in the first nine months of 2024, slower than increases of 62 percent in 2023 and 18.7 percent in 2022, according to Hong Kong Monetary data Authority (HKMA).
Banks’ net interest margin (NIM) – the difference between the interest charged on loans and the interest paid on deposits – narrowed to 1.5 percent in the first nine months of last year, from 1.67 percent by 2023, the data show. The NIM was 1.31 percent in 2022, 0.98 percent in 2021 and 1.18 percent in 2020.
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“Bank profitability remained good, but we will need to focus more on bad debt problems and the increasing trend of financial fraud this year,” HKMA deputy CEO Arthur Yuen Kwok-hang said in a statement on Wednesday. media briefing.
Arthur Yuen, Deputy CEO of the Hong Kong Monetary Authority (HKMA). Photo: Jelly Tse alt=Arthur Yuen, Deputy CEO of the Hong Kong Monetary Authority (HKMA). Photo: Jelly Tse>
The industry’s net interest rates were compressed when Hong Kong’s de facto central bank cut the city’s base rate by a full percentage point in three cuts from September, paralleling cuts by the US Federal Reserve. Commercial banks in the city have followed suit by cutting financing costs for their best customers by 62.5 basis points since then.
Increasing pressure on banks’ balance sheets, the share of bad or doubtful loans has risen as more companies face higher financing costs in a shaky economy. The ratio rose to 1.99 percent of total lending in September, compared to 1.89 percent in June, 1.5 percent at the end of 2023, 1.4 percent in 2022 and 0.88 percent in 2021.
Still, the banking sector has “sufficient collateral and risk management measures to manage the risks,” Yuen said. “The bad debt has not affected the profitability of Hong Kong banks.”
HSBC, Standard Chartered, Bank of East Asia and other banks continued to make provisions for bad loans linked to mainland China’s collapsing real estate sector.
The number of mortgages with negative equity rose 34 percent to 40,713 in September, up from 30,288 in June and 25,163 at the end of December, according to HKMA data. The year-end figures were the highest since 67,575 in the fourth quarter of 2003.