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Hong Kong company reporting season
BusinessBanking & Finance

Coronavirus Hong Kong: 2021 to be a difficult year for banks with bottom lines squeezed by low interest rates, uncertainty

  • Net interest margin likely to ‘remain challenging’ for the city’s banks this year, KPMG China says in latest report card
  • Wealth management increasingly competitive as city’s banks seek Greater Bay Area opportunities

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Low interest rates and economic uncertainty as a result of the coronavirus pandemic will continue to weigh on the bottom lines in 2021 of Hong Kong banks, including HSBC and Standard Chartered. Photo: Bloomberg
Chad Bray
The profitability of Hong Kong’s banking sector, including such big lenders as HSBC and Standard Chartered remains under pressure in 2021, weighed down by historically low interest rates and the ongoing economic uncertainty tied to the coronavirus pandemic, according to KPMG China.
Net interest margin – a key profitability measure for lenders – is likely to “remain challenging” in 2021 as there is little consensus on whether inflationary pressures as economies recovery from Covid-19 induced slowdowns will spur the US Federal Reserve and other central banks to raise rates.

“The clients I talk to are working on that basis [that interest rates] will be lower for longer,” said KPMG’s China partner for financial services Paul McSheaffrey. “It is definitely a problem for the next two or three years. [It is something] everyone I talk to in banks is planning for: How do we change our revenue profile? How do we get different sources of revenue?”

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The 2020 operating profit of all licensed banks in Hong Kong fell 19.3 per cent to HK$232 billion (US$29.9 billion), with net interest margin dropping by 41 basis points, even as total assets jumped 8.8 per cent, while loans and advances increased 3.4 per cent, according to KPMG China’s latest Hong Kong Banking report. Hong Kong’s economy was driven into a recession last year, the city’s worst slump on record, due to a combination of street protests in 2019 that deterred tourists, and the Covid-19 pandemic that sapped consumption.

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When they reported their first-quarter results in April, both HSBC and Standard Chartered, two of the city’s three currency-issuing banks, pointed to the low-interest-rate environment as a reason for a drop in revenue despite reporting strong profits in the quarter as the city’s economic outlook improved.
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