Hong Kong's banking sector is expected to reap the rewards of high interest rates until late next year, according to a report by KPMG. The report reveals that Hong Kong banks made HK$295 billion in operating profit last year, marking a 34.7% increase compared to the previous year. The total assets of all licensed banks in the city also rose by 2.7% to HK$23 trillion. Net interest margin increased by 30 basis points to 1.84% [7b0ffc87].
The report highlights that the Hong Kong government's efforts to digitalize and develop fintech capabilities will further enhance the city's attractiveness to banking customers. Hong Kong is at the forefront of exploring central bank digital currencies (CBDCs), and the Hong Kong Monetary Authority (HKMA) has been actively testing the use of blockchain technology and issuing consultation papers on stablecoins. These initiatives aim to future-proof the financial sector and ensure its competitiveness in the global market [7b0ffc87].
However, the performance of Hong Kong's banking sector this year will be influenced by various uncertainties. Factors such as US monetary policy, the global growth outlook, geopolitical tensions, and the health of China's economy will impact the sector. Additionally, banks are concerned about their exposure to rising costs and risks associated with small and medium-sized enterprises (SMEs) [7b0ffc87].
Despite these challenges, the Hong Kong Monetary Authority (HKMA) has introduced measures to support SMEs in navigating the current operating environment. The HKMA's provisions include not requiring early repayments from borrowers who make their mortgage payments on time and allowing a transition period of at least six months for credit limit adjustments. These measures aim to maintain the financial stability of SMEs and strengthen their bargaining power relative to banks [8305eb56].
The positive growth forecasts for SMEs in Hong Kong align with the survey conducted by NielsenIQ, which found that about 76% of SMEs expect their businesses to grow by 4% or more in the next 12 months. Sectors such as e-commerce, finance, and advanced technology are identified as key areas of growth. For SMEs planning expansion into the Greater Bay Area, advanced technology, consumption, and finance are the top growth sectors. The survey also highlights challenges faced by SMEs, including managing interest rate and foreign exchange risks, controlling the cost of funds, and integrating Environmental, Social, and Governance (ESG) practices into their operations [14c9c692] [7b0ffc87].
In conclusion, while Hong Kong's banking sector is expected to benefit from high interest rates, uncertainties and challenges remain. The HKMA's measures to support SMEs and the positive growth forecasts reflect the authority's commitment to fostering a favorable environment for SMEs and strengthening the overall economic stability of Hong Kong [8305eb56] [7b0ffc87].