Hong Kong retail banks are having their worst time in a decade as low interest rates crimp profits

The average pre-tax profit of 30 licensed retail banks fell by 18.6 per cent in 2021, according to data provided by the Hong Kong Monetary Authority (HKMA)

Bad or doubtful loans – known as classified loans in Hong Kong – stood at 0.81 per cent at the end of September

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Hong Kong’s Central business district. Photo: Reuters

Published: 6:27pm, 26 Jan 2022Updated: 10:45pm, 26 Jan 2022

Hong Kong’s retail banks are having their worst time in a decade, as the low interest rates amid the ongoing Covid-19 pandemic crimped profit margins across the industry for the third consecutive year.

The average pre-tax profit of 30 licensed retail banks fell by 18.6 per cent in 2021, while bad or doubtful loans – known as classified loans in Hong Kong – stood at 0.81 per cent at the end of September, according to data released by the Hong Kong Monetary Authority (HKMA).

The dismal state of the industry puts the HKMA and the city’s banks in a dilemma: whether to extend the loan repayment holiday for the 3,500 businesses that still rely on it for survival, or end the support to bolster banks’ balance sheets. The scheme, rolled over three times since its April 2020 announcement, is due to expire this April.

“The HKMA and the banks are still negotiating with the business sector about the scheme,” said the monetary authority’s deputy chief executive Arthur Yuen Kwok-hang, during a press briefing. “Even if we decide to withdraw the scheme, the support will not be cut in one go, but will be adjusted gradually to give companies sufficient time to prepare themselves.”

Hong Kong Monetary Authority’s (HKMA) Deputy Chief Executive Arthur Yuen Kwok-hang speaking at the press conference of Banking Year-end Review and Priorities at HKMA’s office at Central on 4 February 2021. Photo: K.Y. Cheng

The outlook for Hong Kong’s economy appears grim, as a so-called fifth wave of coronavirus outbreak has discouraged consumption, with the International Monetary Fund concluding last week that the city’s “balance of risks … are tilted to the downside.”

The average profitability among retail banks had slowed their decline, compared with the 29.4 per cent slump in 2020, but is still worse than the 0.6 per cent decline in 2019, when Hong Kong was rocked by months of street protests.