- The pre-tax profit of all Hong Kong’s retail banks rose 1.8 per cent in the first nine months of 2019, while the capital ratio is over 20 per cent, among the highest worldwide
- Saying HK banks are heading for crisis is ‘groundless’, says HKMA deputy chief executive Arthur Yuen as he unveils data for the sector
Hong Kong's banks were among the world's best capitalised last year, and local currency deposits rose even amid an unprecedented political crisis, according to the city's de facto central bank, as it called the bluff on doomsday predictions by short-sellers of an imminent banking crisis.
The capital adequacy ratio of Hong Kong's banks stood at 20.9 per cent last year, among the highest worldwide, according to the annual banking review by the Hong Kong Monetary Authority (HKMA). Local currency deposits rose 2.9 per cent, while the industry's aggregate bad loans ratio fell by 0.04 percentage point to 0.56 per cent in September from a year earlier, among the lowest in the world, the data showed.
"Hong Kong's banking sector is among the safest worldwide," said the HKMA's Deputy Chief Executive Arthur Yuen, during a press conference. "The data shows that Hong Kong's banking sector is profitable and solid, even amid the challenging operating environment and the social unrest during the past seven months."
The assessment would be a rebuff of the dire prediction by short-seller Kyle Bass, the hedge fund manager who had been forecasting Hong Kong's "full-fledged banking crisis" in 2020, much like the financial crisis encountered by Iceland and Ireland a decade ago, according to a Bloomberg report.
"For someone to describe the safest banking sector in the world (as facing) a crisis is just groundless, and is not based on real data and figure," said Yuen, who is responsible for banking regulation at the monetary authority. "There are comments from time to time about the fragility of the local banking sector, usually due to misunderstanding about our banking and currency system, while some are just not based on facts and figures."
The data also underscores how Hong Kong's capital markets have continued to withstand the headwinds from the city's economy, in its first technical recession in a decade as a year-long US-China trade war and seven months of anti-government protests have combined to put the squeeze on retail sales and consumption.
Property prices are down, while tourists have stayed away, and businesses have deferred their expansion plans. Still, the exchange rate of the city's currency, pegged against the US dollar since 1983, remains at the highest in three years, as an active pipeline of initial public offerings (IPOs) boosted demand for the local dollar.
Hong Kong's stock exchange had its busiest day in 18 months yesterday , with seven stocks making their trading debut on the bourse, bringing the tally to 22 so far this year in the world's IPO capital.
Still, Hong Kong's protests had increasingly deteriorated in recent months into bouts of vandalism and mayhem, where radical protesters broke into bank branches, destroyed automated teller machines (ATMs), especially those that belong to mainland Chinese banks. Even HSBC, the century old British bank that traces its root to Hong Kong and Shanghai, incurred the wrath of vandals recently.
The unprecedented damage of branches and ATMs forced many banks to shutter outlets in some of the most protest-affected districts.
Loans growth topped 6.7 per cent last year, 2.3 percentage points higher than in 2018, the HKMA's data showed. Still, that was not enough to lift the sector's earnings, with nine-month pre-tax profit growth slowing to 1.8 per cent last year, putting the industry on track to miss the 19.4 per cent annual growth in 2018.
Looking ahead, seven virtual banks are poised to begin operations this year, following the lead of ZA Bank, which is offering 6.8 per cent per annum returns on deposits, giving bricks-and-mortar banks in the city a run for their money.
The HKMA this year will step up a mechanism to monitor banks' risk management practises in their loans to private enterprises in mainland China. The monetary authority will work with banks to prepare for the suspension of the London interbank offered rates, or Libor, in 2021. At present, there are HK$4.5 trillion of Hong Kong dollar transactions and HK$33 trillion (US$4.25 trillion) of derivative contracts that are priced with Libor, where a third of them will expire after 2021.
"Banks will need to work how to handle the situation of the cancellation of Libor and how to handle the pricing of these contracts," Yuen said.
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