Banking & Finance

High street banking gets even more profitable in Hong Kong

Operating profits of retail banks grew 13.9 per cent in the first three quarters because of a sharp rise in their income from lending, HKMA data shows

PUBLISHED : Friday, 22 December, 2017, 6:33am
UPDATED : Friday, 26 January, 2018, 4:14pm

High street banking in Hong Kong has become even more profitable this year, according to the latest figures from the Hong Kong Monetary Authority.

Aggregate pre-tax operating profits of retail banks’ Hong Kong offices grew by an annual 13.9 per cent in the first three quarters of this year because of a sharp rise in their income from lending.

Banks lent more this year, and this lending was more profitable.

Lending by retail banks in the city was up by 12.8 per cent in the first nine months of 2017, compared to the same period last year, thanks to growth both within Hong Kong and outside, and the average net interest margin on this lending rose to 1.43 per cent, from 1.32 per cent.

A bank’s net interest margin is the difference between the interest it pays on deposits and receives on loans as a proportion of its total lending.

This trend seems set to continue.

“All variables for large Hong Kong banks’ revenues have shown material pickup in the fourth quarter of 2017,” wrote research analysts at Morgan Stanley lead by Anil Agarwal in a recent note.

For retail banks, the most significant of these factors is the Hong Kong inter bank offered rate, or Hibor, which has been rising steadily since October.

On December 21, one-month Hibor stood at 1.15893 per cent, the highest level since mid-2008.

“Hang Seng Bank’s net interest margin and fees trajectory are quite predictable and should show very strong earnings in the fourth quarter. Bank of China Hong Kong, on the other hand, has much more NIM [net interest margin] volatility (given aggressive treasury) but it should also benefit meaningfully in the fourth quarter from the Hibor pick up,” wrote the Morgan Stanley analysts.

As well as their interest income, Hong Kong banks also grew their fee and commission income by 9.8 per cent in the first nine months of the year, according to the HKMA’s data. However, these increases were partly offset by a decline of 25.6 per cent in income from foreign exchange and derivative businesses, and a growth of 9.1 per cent in operating expenses.