2021-05-31-毕马威-Embracing_Change,driving_growth_92页_2mb

Summary of Hong Kong Banking Report 2021

Core Content

The Hong Kong Banking Report 2021 provides an analysis of the banking sector's performance in 2020 and outlines key trends and challenges for the year ahead. Despite the impact of the pandemic, the sector has shown resilience, with a focus on transformation, ESG, wealth management, and regulatory changes.

Main Themes and Key Points

1. Impact of the Pandemic on the Banking Sector

• Economic Contraction: Hong Kong's economy contracted by 6.1% in 2020, compared to a 1.2% contraction in 2019.
• Resilience of the Banking Sector: The banking sector remained stable, with no significant financial crisis, and continued to show strength in balance sheets.
• Revenue and Profitability Pressures: Banks faced a drop in revenue, primarily due to decreasing net interest margins (NIM), which had a notable impact on profitability.
• Continued Recovery Outlook: With vaccine rollouts and border openings, economic activity is expected to improve in the second half of 2021, potentially boosting the banking sector.

2. Net Interest Margin (NIM) Trends

• Overall NIM Decline: The average NIM across all surveyed licensed banks decreased by 41 basis points in 2020, from 1.71% to 1.38%.
• Top 10 Banks NIM: All top 10 banks saw a decline in NIM, with HSBC maintaining the highest at 1.73% and Nanyang the smallest decrease (6 basis points).
• Challenges in 2021: The low interest rate environment is expected to continue affecting NIM, with no clear consensus on rate increases from the US Fed.

3. Cost Management and Profitability

• Cost-to-Income Ratio Increase: The average cost-to-income ratio increased by 6.69 percentage points to 50.95%.
• Cost Reduction Efforts: Banks focused on reducing costs, especially IT expenses, with Nanyang showing a notable 126 basis point reduction.
• Cost Increase in 2021: Some banks, such as HSBC, increased their cost-to-income ratio due to lower operating income, while others like SCB continued to have high ratios.

4. Loans and Advances

• Growth in Loans: Total loans and advances increased by 3.4% in 2020, compared to 6.4% in 2019.
• Top Lenders: HSBC and BOC (HK) dominated the lending market, accounting for 50% of total loans.
• Loan Portfolio Composition: Commercial loans and mortgage lending remained the largest components of the loan portfolio.
• DBS Growth: DBS recorded the highest percentage growth in loans (25.2%) due to increased construction loan activity.

5. Credit Quality and Impaired Loans

• Credit Quality Deterioration: The impaired loan ratio increased by 21 basis points to 0.71%.
• Top 10 Banks: CITIC had the highest impaired loan ratio (1.65%), while BOC (HK) had the lowest (0.29%).
• Credit Risk Management: Banks focused on monitoring credit quality and adjusting risk parameters due to the pandemic's impact on repayment abilities.

6. Virtual Banks

• Introduction of Virtual Banks: The report includes a new category on virtual banks, with eight institutions granted licenses by the HKMA in 2019.
• Initial Performance: All virtual banks were loss-making in 2020, but they are investing in digital infrastructure and customer acquisition.
• Deposit and Loan Growth: Combined deposits reached HK$15.8 billion, with ZA Bank and Mox Bank holding the largest shares. Some virtual banks, like Mox, introduced credit card services, while Airstar launched corporate banking services.

7. Expected Credit Loss (ECL) Models

• Challenges in ECL Modelling: The pandemic caused uncertainty in ECL models, with some banks overestimating or underestimating credit losses.
• Model Adjustments: Banks conducted detailed model validation exercises, leading to findings and updates to their ECL models.
• Key Considerations: Banks need to reassess risk parameters, staging of financial instruments, collateral valuations, and macroeconomic forecasts, especially for sectors heavily impacted by the pandemic.

8. Regulatory and Strategic Trends

• Regulatory Focus: Banks are increasingly adopting Regtech solutions to improve compliance and risk management.
• ESG Integration: The HKMA is promoting ESG in risk management, and some banks are integrating ESG into their business strategies.
• Wealth Management Connect: The GBA Wealth Management Connect is seen as a key opportunity for banks to expand wealth management services, particularly in mainland China.
• Digital Transformation: The pandemic accelerated digital transformation, with both traditional and virtual banks enhancing their digital offerings.

Conclusion

Hong Kong's banking sector, while facing challenges such as declining NIM, increased costs, and credit risk, remains resilient. The sector is adapting to a new normal through digital transformation, ESG integration, and strategic expansion in wealth management and international connectivity. Virtual banks are emerging as a new force, though their long-term success is still uncertain. Regulatory changes and economic recovery will play a critical role in shaping the sector's future.