Hong Kong virtual banks’ profitability hinges on their ability to harness payroll accounts, says KPMG
- Hong Kong’s eight virtual banks, expected to launch operations in the first quarter of 2020, are likely garner up to three per cent of the city’s deposit base, says KPMG
- Scramble for payroll accounts could intensify after 2020, as virtual banks compete for low-cost funding source
The success of Hong Kong’s virtual banks depends on their ability to convince customers to switch their payroll accounts from traditional banks, which would give them access to a low-cost and stable funding source, helping them to grow their loan books profitably, according to KPMG.
Virtual banks are expected to corner only two to three per cent of the city’s deposit base in the first year because they will be able to attract only a few thousand customers each, said Paul McSheaffrey, head of banking and capital markets for Hong Kong at KPMG China, during the release of the accounting firm’s 2020 Hong Kong banking outlook, on Wednesday.
KPMG expects 2020 to be a challenging year for the city’s banking sector because of unrelenting pressure on banks’ net interest margins and revenue growth.
“When customers start to switch their payroll accounts to virtual banks, it will have a more tangible impact on the profitability of virtual banks,” said McSheaffrey, adding that it would not happen “after 2020”.
However, the virtual lenders are unlikely to initially create a big dent in the loan books of the 164 traditional banks that operate in Hong Kong, he added.
Local currency deposits at Hong Kong’s banks and authorised institutions stood at HK$6.9 trillion (US$881.3 billion) as of October, according to data from the Hong Kong Monetary Authority
