Banks' profitability may decrease further in the second half as a result of slower economic growth, but they are unlikely to suffer losses, according to a report by the Hong Kong Monetary Authority.
'The banking sector in Hong Kong has not been immune to the impact of the global financial crisis and the associated recession,' said the report, released yesterday.
The 'Half-yearly Monetary and Financial Stability Report' is a regular update on the industry issued by the authority every June and December. 'Banks' profitability, while remaining healthy at current levels, will be subject to downward pressure in the period ahead,' it says.
However, it adds: 'Results from the stress tests, which assess the resiliency of local banks to severe macroeconomic shocks, show that even in improbable adverse scenarios, banks would continue to be profitable, albeit at low levels.'
Hong Kong lenders had less exposure than their US and European counterparts to the so-called toxic assets linked to US subprime mortgage loans, the report said. But banks in the city have been hit hard by the economic slowdown since the fourth quarter.
While the mainland has initiated policies to stimulate the economy, it is not sure how large the spillover effect would be for Hong Kong. The uncertain external environment clouds the picture further for Hong Kong for the remainder of the year and the city's economy may have its first full-year contraction since 1998.