bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Hong Kong banks' profit 'gravy-train' is running out of steam, forcing the banks to cut costs and raise new revenues from bank charges, according to analysts.

The comments follow news yesterday that the SAR's biggest lender, HSBC, has followed Standard Chartered Bank by introducing a range of new charges. More banks are likely to follow suit.

As with Standard Chartered, HSBC's charges are designed to force customers to keep higher balances, use electronic delivery channels and stay out of branches - unless it is to buy more banking products.

Under a regime which gets under way from July 1, customers whose savings account balances fall below HK$5,000 will be charged a monthly fee of HK$40.

From May 1, customers whose deposits fall below HK$1,000 will earn zero interest on their accounts.

On the other end of a graduated scale, customers with balances of more than HK$150,000 will earn a 'bonus' rate of 0.25 per cent above new benchmark rates to come once interest rate ceilings are scrapped on July 1.

There will be no charges for using ATMs or Internet banking services.

HSBC general manager Raymond Or said the banking industry in Hong Kong was in transition and faced increased competition and a changing regulatory environment.

But analysts said the real culprit behind the new charges was the collapse in property prices.

Hong Kong banks have historically been among the more profitable in the world, generating returns on shareholder funds of more than 20 per cent in some cases.

The most profitable of all, measured by return on equity (ROE), is HSBC subsidiary Hang Seng Bank - which last year produced a profit for shareholders of just over HK$10 billion, or an ROE of 23.6 per cent.

About 75 per cent of Hang Seng's income comes from its lending activities and more than half its loans - HK$113.98 billion out of a total Hong Kong loan portfolio of HK$208.77 billion - are made to individuals to buy property.

During the heady economic expansion of the early 1990s, high inflation and a boom in property prices helped to fuel strong growth in monetary aggregates and loan demand.

With customers expecting their homes to appreciate strongly in value, banks were able to charge them up to 200 basis points above the prime, or best, lending rate for mortgages. But the crisis of 1997 and 1998 brought that mutually satisfactory money-making machine to a grinding halt.

Over the past year or more there has been virtually zero growth in loan demand, and for the past two years banks have been forced to entice customers back into the mortgage market with ever-decreasing interest rates.

Hang Seng's average yield on its mortgage book last year was 26 basis points below the prime rate, compared to 49 basis points above prime in 1999.

For the moment, as Hang Seng's ROE shows, the legacy of high returns lingers. But a key forward-looking measure of the revenues it is able to make out of plain vanilla loans - its net interest margin - is beginning to show the strain of the new lending environment.

Last year, Hang Seng's net interest margin slipped from 2.87 per cent to 2.68 per cent because of the bank's high dependence on ever-lower yields earned from making mortgage loans in a depressed market.

Ahead looms an end to interest-rate deregulation and a probable competition for funds, all of which comes in the wake of heavy spending by banks on Internet facilities.

The outcome should be no surprise, say analysts - new banking charges designed to shed customers who contribute to costs but not to profits. In this respect the charges unveiled yesterday by HSBC predictably mirror those unveiled earlier in the year by Standard Chartered.

They are designed to improve the profitability profile of their customers. Low-value customers who make no contribution to profits are being encouraged to take their custom elsewhere - or pay to stay.

Lining up to accept customers who object to the charges are several banks who have pledged not to introduce new charges - for the moment at least. Among them are Dah Sing Bank, Chekiang First Bank, and Citic Ka Wah Bank.



New rules derail bank gravy train