Brighter days ahead, says HSBC
AFTER weathering a restrictive operating environment, Hong Kong banks will face a rosy future in 1996, basking in the glow of reduced interest rates and revived loan growth, a Hongkong Bank report says.
It says the interest rate cycle has run its course, and a widely anticipated decline in interest rates will take pressure off bank interest rate margins.
The Government's decision to stop short of deregulating interest rates for deposits of less than seven days maturity has alleviated banks' concerns and willbe beneficial to margins.
Resultant lower interest rates are expected to boost traditional lending business following the revival of the economy.
'While trade financing will continue to expand rapidly in the light of Hong Kong's robust external sector, consumer credit is also expected to grow next year as local economic conditions improve,' the report says.
Lending opportunities on infrastructure financing have opened up enormously because the Sino-British negotiations ended in amicable agreement.
The fledgling capital market has given further impetus to bank non-interest income, it says.
However, the prolonged consolidation of the residential property market is likely mar what would otherwise be a bright picture.
The report says that although mortgage lending rose sharply by 7.1 per cent in the second quarter, statistics in July and August point to a fragile recovery.
To combat the sluggish market, banks are expected to compete intensely for mortgage business.
'However, growth in mortgage lending is likely to remain constrained by the 70 per cent mortgage ceiling and the government's price-cooling measures,' the report says.
Another battle will be waged for deposits.
The bank says the scrapping of further interest rate deregulation on time deposits of less than seven days bodes well for the sector.
Competition for deposits is expected 'to escalate again when the domestic economy recovers and infrastructural financing picks up'.
Their appetite for certificates of deposits to generate medium-term funding is expected to be strong.
The bank predicts that increased costs will be passed on to customers in the form of fees and charges, or through inconvenience, operating fewer branches or offering fewer services.
The imposition of fees and charges is seen as inevitable because there are limits to the ability of banks to restrain growth in operating costs.
Although loan growth will remain strong, comparable deposit growth may prove elusive.
The bank forecasts steady growth in Hong Kong dollar deposits, supported by an influx of funds.
