Pre-tax profits rise at Hong Kong banks for third year, but loan growth decline may weigh on sector in 2019

Pre-tax profits at Hong Kong banks rose for a third straight year in 2018, thanks to a wider interest margin after the lenders raised their prime lending rate for the first time in 12 years, the Hong Kong Monetary Authority said on Thursday.

Growth in pre-tax profits in 2018 was also higher, at 19.4 per cent; it stood at 15.7 per cent in 2017 and 8.3 per cent in 2016. The sector recorded a decline of 2.8 per cent in 2015.

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The banks’ net interest margin, or the difference between interest income earned from loans and interest paid for deposits, stood at 1.62 per cent in 2018, compared with 1.45 per cent in 2017 and 1.32 per cent in 2016.

Major banks in the city will announce their 2018 results over the next two months and Arthur Yuen Kwok-hang, deputy chief executive at the HKMA, Hong Kong’s de facto central bank, said last year had been good for the sector, with good profitability.

But he also issued a warning about the risks that lay ahead, and said the US-China trade war had already led to declines in loan growth in the second half of last year.

“This has resulted in full-year loan growth of 4.4 per cent in 2018 – much lower than the 16.1 per cent in 2017,” he said.

Analysts shared this view. Louis Tse Ming-kwong, director of Hong Kong brokerage VC Wealth Management, said: “The banking sector did well in 2018, but it is going to face a tough and challenging year in 2019. The investment market is volatile, while the mainland and Hong Kong economies are slowing down. These will cut down loan demand and increase bad debt.”