Rising uncertainty over trade war could weigh on bottom lines at Hong Kong’s banks, KPMG says

Rising interest rates helped boost Hong Kong banks as the city’s economy slowed last year, but heightened uncertainty from an escalating trade war between the United States and China could weigh on their performance in 2019, according to KPMG.

Operating profit before impairments at the city’s licensed banks rose 15 per cent to HK$268 billion (US$34 billion) last year, from HK$234 billion in 2017, the accounting giant said. Total revenue at Hong Kong’s lenders increased 11.2 per cent to HK$445 billion.

The Hong Kong Monetary Authority raised the city’s base lending rate four times in 2018, moving in lockstep with increases by the US Federal Reserve.

That allowed the city’s banks, including HSBC, Hang Seng Bank and Bank of China Hong Kong, to increase their lending rates in September for the first time since the global financial crisis despite a slower pace of economic growth last year.

Further rate increases are not likely as the Fed is generally expected to cut rates at least once in the second half of this year, said Paul McSheaffrey, KPMG China’s head of banking and capital markets, Hong Kong. Trade tensions are likely to weigh on loan growth, he said.

“Tensions on trade will cause the rate of loan growth to decline. We still expect the total balance of loans to increase but I think the rate of loan growth is probably more muted. That is really all to do, in my view, with uncertainty,” McSheaffrey said. “People are still getting used to this. People need certainty before they can invest or increase the levels that they’re willing to invest and need lending to help with that investment.”