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Developments in the banking sector

HIGHLIGHTS OF KEY TRENDS

Banking sector performance

The aggregate pre-tax operating profit of retail banks’ Hong Kong offices fell by 4.8% in the first quarter of 2016 compared with the same period last year. Income from fees and commissions dropped by 11% against a strong first quarter of 2015. Net interest income also declined by 2.7% (Table 1).

The net interest margin of retail banks narrowed to 1.28% in the first quarter from 1.33% in the same period a year ago (Chart 1). This was mainly attributable to a lower return on RMB-denominated assets and the investment of surplus funds by retail banks in lower-yielding assets such as government papers given the subdued demand for credit.

Volatility in Hong Kong dollar interbank interest rates increased in the first quarter amid heightened uncertainties in the financial markets. Nevertheless, the composite interest rate, a measure of the average cost of Hong Kong dollar funds for retail banks, remained broadly stable (Chart 2).

Retail banks’ classified loan ratio rose to 0.78% at the end of the first quarter from 0.70% a quarter earlier, but remained at a low level by historical standards (Table 3).

For the banking sector as a whole, total Mainlandrelated lending increased by 0.4% to HK$3,342 billion at the end of March from HK$3,329 billion at the end of December 2015 (Table 2). The classified loan ratio of Mainland-related lending rose to 0.94% from 0.78% during the period (Table 3).

Key performance indicators of the banking sector are provided in the Appendix.

Profitability

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Content provided by Hong Kong Monetary Authority
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