Companies brace for tough year when any profits will be prized - Banking

PUBLISHED : Friday, 01 January, 2010, 12:00am
UPDATED : Friday, 01 January, 2010, 12:00am

One of the challenges the banking sector faces in 2010 is the risk of capital outflow, which could affect the asset markets, according to Benjamin Hung Pi-cheng, who will take up the chairmanship of the Hong Kong Association of Banks this year.

'There may be some drawback which has not been seen yet,' he says, adding that markets could also be affected if central banks withdraw their economic support measures too early or too late.

Hung says banks in Hong Kong have seen their business improve this year as capital flowed into Asia after central banks injected massive liquidity into the markets after the global financial turmoil. That helped raise asset prices in the city.

'We do not want to see asset prices rise to a level that is derailed from economic fundamentals,' he says.

He is concerned that asset prices could be affected when the inflow of funds reverses course.

Hung expects bank profit margins will continue to be under pressure in 2010 amid the low interest rate environment, adding that Hong Kong interest rates will only increase following a United States move.

'It is unlikely interest rates in US will rise in the first half of next year,' he says.

Separately, he says one of the priorities of the banking body this year is to rebuild public confidence in banks.

He says the public lost confidence in banks in Western countries after the financial crisis and banks in Asia are not completely immune to the crisis.

In Hong Kong, investor confidence in buying investment products from banks was also hit after many people lost heavily on minibonds guaranteed by Lehman Brothers when the US bank went under in September 2008.