Rate cut uncertainty remains, KPMG: High interest rate environment benefits the profitability of Hong Kong banks
Recently, KPMG released the 2024 Hong Kong Banking Industry Report, stating that due to the higher interest rate environment in 2023, Hong Kong banks saw a moderate growth in their balance sheets, with significant increases in net interest margin and operating surplus. KPMG believes that with interest rates possibly remaining higher than expected, the banking industry will continue to benefit. However, the timing and extent of interest rate cuts still remain uncertain, and banks should formulate corresponding strategies to address this. For banks with a broader involvement in the capital markets, a rate-cutting environment will bring favorable support. Looking ahead, the speed and strength of Hong Kong's economic recovery from the continued impact of the COVID-19 pandemic will be another key factor
According to the latest information from the Smart Finance and Economics APP, KPMG recently released the 2024 Hong Kong Banking Industry Report, pointing out that benefiting from the higher interest rate environment in 2023, Hong Kong banks saw a moderate growth in their balance sheets, with significant increases in net interest margins and operating profits. The bank expects that despite the challenging business environment, the Hong Kong banking industry will lay a foundation for future development in 2024. Ma Shaohui, Senior Partner of KPMG China's Hong Kong Banking Industry, stated that looking ahead, with interest rates possibly remaining higher than expected, the banking industry will continue to benefit. However, the timing and extent of interest rate cuts still remain uncertain, and banks should formulate corresponding strategies to address this.
Shen Yaowen, Partner of KPMG China Financial Services, mentioned that as the high interest rate environment persists, banks need to manage their loan portfolios and be vigilant about credit risks while increasing profitability. With expected interest rate cuts and continuous cost increases, banks must tackle challenges by controlling costs and creating space for ongoing investments.
KPMG believes that for banks with a broader presence in the capital markets, the interest rate reduction environment will bring favorable support. As stocks become more attractive, banks engaged in investment banking and wealth management businesses will benefit from this. With changes in the interest rate cycle, various factors such as capital market activities, stock risk premiums, corporate debt financing, and the inevitable cash risk premium "opportunity cost" will have varying degrees of impact on each bank when the interest rate cycle reverses.
Looking ahead, KPMG stated that banks' exposure to the mainland China real estate industry and Hong Kong SMEs will be key to the prospects of credit quality. Any further measures taken by the mainland Chinese authorities to curb and manage the situations arising from the real estate industry will be crucial for stabilizing the market and reducing borrower defaults. In addition, the speed and strength of Hong Kong's economic recovery from the continued impact of the COVID-19 pandemic will be another key factor, especially for SMEs. A strong rebound in the Hong Kong economy will help improve the credit environment