Pressure on margins builds for HK banks
Hong Kong banks are looking at a tough year ahead as net interest margins are pressured by depressed interest rates and fierce competition while impairment charges are likely to rise, financial experts said.
Overall net profit at the city's listed banks fell 34.2 per cent last year, crimped by higher impairment charges and write-downs on loan and investment assets, global accounting firm KPMG said yesterday.
Net interest income rose 7.7 per cent on average, but fell at a few lenders because of the contracted margins, it said.
Average net interest margin for retail banks fell to 1.84 per cent last year from 1.9 per cent in 2007.
'Interest margins will remain under pressure,' said Martin Wardle, a partner in charge of KPMG's financial services practice in Hong Kong, adding that it was one of the factors that could affect banks' earnings this year.
Low interest rates might hurt returns on banks' free funds, weakened loan growth and intensified competition for good loans such as mortgages, Mr Wardle said.
Although lenders were not expected to book massive investment write-downs this year as the problem assets had mostly been dealt with last year, provisions for bad loans might rise as the economy had yet to recover, he said.
'However, we don't anticipate a major rise in non-performing loans and provisions.'
Investment write-downs, including those on equities, at the 13 Hong Kong-listed banks were at least HK$25.5 billion last year from HK$7.7 billion in 2007, KPMG said.
Lee Yuk-kei, an analyst at Core Pacific-Yamaichi, said Hong Kong lenders were likely to see a net profit growth this year as impairment charges on investment fell.
However, operating profit could drop, he said.
'Asset quality is likely to deteriorate,' said Mr Lee, adding that net interest margins were still under pressure but the pressure was easing.
He said mainland banks would also see margin pressure as the central bank started cutting lending rates last year, in some cases greater than the reduction in deposit rates.
'The impact on net interest margin has been felt in the fourth quarter last year and first quarter this year,' Mr Lee said.
Walkman Lee, KPMG's partner of financial services practices in Hong Kong, also said interest spreads at mainland-listed lenders had narrowed after the central bank cut interest rates in the fourth quarter.
He added that impairment charges were high in absolute terms at mainland lenders, but there had been no clear signs of deterioration in loan quality.
'Whether the delinquency will pick up or not will depend on the economic effect of the stimulus package and also the recovery in the global economy,' Mr Lee said.
Mainland-listed banks reported 30.6 per cent average growth in net profit last year, partly because of the tax rate cut, KPMG said. Excluding taxes, overall profit still grew 16.8 per cent, thanks to increases in loans and fee income, it said.
