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Developments in the banking sector

The Hong Kong banking sector remained sound despite emerging signs of economic slowdown or decline in some economies and uncertainties in the US Federal Reserve’s timing and pace of interest rate rises. In the first three quarters of 2014, retail banks’ aggregate pre-tax operating profit rose by 6.4% compared with the same period last year. The net interest margin (NIM) remained unchanged during the same period. Retail banks’ asset quality remained sound with their classified loan ratio edging down to 0.43% at the end of the third quarter of 2014 from 0.46% a quarter earlier. The consolidated capital adequacy ratio of locally incorporated authorized institutions (AIs) rose to 16.4%, well above the international minimum standard of 8%. The HKMA will continue to closely monitor developments in the banking sector and ensure that banks remain resilient in such uncertain external environment.

HIGHLIGHTS OF KEY TRENDS

Profitability grows moderately

Retail banks’ Hong Kong offices registered a 6.4% increase in aggregate pre-tax operating profit in the first three quarters of 2014 compared with the same period last year. The rise was mainly attributable to the robust growth in net interest income (+15.2%), but partly offset by the increase in operating expenses (+10.3%).

Retail banks’ profit margins remained largely stable. The year-to-date annualised NIM of retail banks was 1.41% in the first three quarters of 2014, unchanged as compared with the same period last year (Chart 1). It is worth noting that the funding cost of retail banks has steadily declined after reaching a recent high in June 2014, as indicated by a downward trend in composite interest rate since mid-2014 (Chart 2).

Developmentsinthebankingsectora.gif

Developmentsinthebankingsectorb.gif

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Content provided by Hong Kong Monetary Authority
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