Hong Kong’s banks are having their worst time since 2008 as profits plunge while bad loans soar amid city’s recession

Hong Kong’s banks are having their worst time since the 2008 Global Financial Crisis, as profits plunged while bad debt soared amid the city’s worst recession in decades.

The average pre-tax profit among the city’s retail banks fell for the second year in 2020, plunging by 29.4 per cent, according to the Hong Kong Monetary Authority (HKMA). The ratio of bad and doubtful loans, known as classified loans ratio in Hong Kong, jumped to a four-year high of 0.84 per cent at the end of September, from 0.57 per cent in 2019. The outlook for 2021 remains dim.

“Local banks will continue to face a challenging time this year because the [ongoing] pandemic is [piling weight on] the city’s worst recession on record,” said HKMA’s deputy chief executive Arthur Yuen Kwok-hang during a press conference on the review of the city’s banking industry. “We are discussing with the banks to find a way which would safeguard the sector while helping the economy to recover.”

The dismal picture of shrinking earnings and rising debt among retail banks draws a stark contrast with Hong Kong’s booming stock market and the bull run in the property market, underscoring how the city’s real economy marches to a different beat from its role as China’s offshore financial hub. Thousands of restaurants, retailers and other businesses have shut down, or are at risk of going under, saddling their owners with debts and unpaid bank loans during the recession.

Hong Kong’s economy shrank 3 per cent in the fourth quarter, resulting in a full-year decline of 6.1 per cent in 2020, according to advance estimates released by the Census and Statistics Department.

The city last saw a similar level of decline in 1998 when its gross domestic product contracted by 5.1 per cent, as the Asian Financial Crisis battered the local economy.