Challenging conditions have dragged down banks' asset quality for the first quarter compared with the end of last year, but profits rose year on year as some lenders cut costs and delved further into treasuries, according to the Hong Kong Monetary Authority (HKMA).
In its latest quarterly bulletin, Hong Kong's de facto central bank also warned: 'The outbreak of Sars ... did not have much impact on the banking sector in the first quarter but its effect may be reflected more in the second quarter.'
In the first quarter, banks' proportion of special-mention loans - where borrowers are experiencing problems - to total assets rose to 6.47 per cent from 6.09 per cent at the end of last year. The proportions of non-performing and overdue and rescheduled loans to total loans also edged up slightly.
Banks able to drive down costs and make headway in increasing non-interest income led the rise in profits in the quarter.
Non-interest income grew markedly on the back of gains in foreign-exchange and interest-rate derivatives activities, lower mark-to-market losses in investments held for trading and increased income from fees and commissions, the HKMA said.
The proportion of non-interest income to operating income increased to 30 per cent in the first quarter from 26 per cent last year.
