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Developments in the banking sector

The Hong Kong banking sector remained sound despite the US Federal Reserve’s further tapering of its asset purchase programme and the uncertain external environment. In the first quarter of 2014, retail banks’ aggregate pre-tax operating profit rose by 10.7% compared with the same period last year. The net interest margin (NIM) remained unchanged during the same period. Retail banks’ classified loan ratio edged down to 0.46% at the end of the first quarter of 2014 from 0.48% at the end of previous quarter. The consolidated capital adequacy ratio of locally incorporated authorized institutions (AIs) was maintained at 15.9% at the end of the first quarter, well above the minimum international standard of 8%. The HKMA will continue to closely monitor developments in the banking sector and ensure that banks remain resilient amid challenging market environment.

HIGHLIGHTS OF KEY TRENDS

Profitability strengthens

The 10.7% increase in the aggregate pre-tax operating profit of retail banks’ Hong Kong offices in the first quarter of 2014 was mainly due to robust growth in net interest income, which was up by 15.7% compared with a year ago. Retail banks’ profit margins remained quite stable. The year-to-date annualised NIM of retail banks was 1.39% in the first quarter, unchanged compared with the same period last year (Chart 1). The relatively steady NIM reflected that banks managed to increase their yields to offset the effect of higher funding costs, as indicated by an upward trend in composite interest rate since the second quarter of 2013 (Chart 2).

 

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The cost-to-income ratio of retail banks declined to 40.8% in the first quarter of 2014 from 41.7% a year earlier, as the increase in operating income (+10.3%) outpaced that of operating expenses (+8.0%) during the period.

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Content provided by Hong Kong Monetary Authority
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