Crisis, what crisis? Hong Kong’s banks remain ‘profitable and solid,’ HKMA says, calling the bluff on short sellers’ doomsday prediction
- The pre-tax profit of all Hong Kong’s retail banks rose 1.8 per cent in the first nine months of 2019, while the capital ratio is over 20 per cent, among the highest worldwide
- Saying HK banks are heading for crisis is ‘groundless’, says HKMA deputy chief executive Arthur Yuen as he unveils data for the sector
Hong Kong’s banks were among the world’s best capitalised last year, and local currency deposits rose even amid an unprecedented political crisis, according to the city’s de facto central bank, as it called the bluff on doomsday predictions by short-sellers of an imminent banking crisis.
The capital adequacy ratio of Hong Kong’s banks stood at 20.9 per cent last year, among the highest worldwide, according to the annual banking review by the Hong Kong Monetary Authority (HKMA). Local currency deposits rose 2.9 per cent, while the industry’s aggregate bad loans ratio fell by 0.04 percentage point to 0.56 per cent in September from a year earlier, among the lowest in the world, the data showed.
“Hong Kong’s banking sector is among the safest worldwide,” said the HKMA’s Deputy Chief Executive Arthur Yuen, during a press conference. “The data shows that Hong Kong’s banking sector is profitable and solid, even amid the challenging operating environment and the social unrest during the past seven months.”
“For someone to describe the safest banking sector in the world [as facing] a crisis is just groundless, and is not based on real data and figure,” said Yuen, who is responsible for banking regulation at the monetary authority. “There are comments from time to time about the fragility of the local banking sector, usually due to misunderstanding about our banking and currency system, while some are just not based on facts and figures.”
Still, Hong Kong’s protests had increasingly deteriorated in recent months into bouts of vandalism and mayhem, where radical protesters broke into bank branches, destroyed automated teller machines (ATMs), especially those that belong to mainland Chinese banks. Even HSBC, the century old British bank that traces its root to Hong Kong and Shanghai, incurred the wrath of vandals recently.
Loans growth topped 6.7 per cent last year, 2.3 percentage points higher than in 2018, the HKMA’s data showed. Still, that was not enough to lift the sector’s earnings, with nine-month pre-tax profit growth slowing to 1.8 per cent last year, putting the industry on track to miss the 19.4 per cent annual growth in 2018.
Looking ahead, seven virtual banks are poised to begin operations this year, following the lead of ZA Bank, which is offering 6.8 per cent per annum returns on deposits, giving bricks-and-mortar banks in the city a run for their money.
The HKMA this year will step up a mechanism to monitor banks’ risk management practises in their loans to private enterprises in mainland China. The monetary authority will work with banks to prepare for the suspension of the London interbank offered rates, or Libor, in 2021. At present, there are HK$4.5 trillion of Hong Kong dollar transactions and HK$33 trillion (US$4.25 trillion) of derivative contracts that are priced with Libor, where a third of them will expire after 2021.
“Banks will need to work how to handle the situation of the cancellation of Libor and how to handle the pricing of these contracts,” Yuen said.