Taking a hit: A HSBC bank branch in London. HSBC made US$3.4bil in provisions to cover expected credit losses for the year due to Chinese commercial real estate. — Bloomberg
HONG KONG: While Hong Kong banks have reaped the benefits of rising interest margins in 2023, experts are warning of tough times ahead for the sector, as economic uncertainties are expected to lead to lower growth.
The year 2023 was a bumper year for Hong Kong lenders amid rising funding costs.
Pre-tax profit among the city’s banks jumped 62.1% year-on-year (y-o-y) in aggregate last year, according to the Hong Kong Monetary Authority. That compared with an increase of 18.7% in 2022.
HSBC said the impairment charge for its almost one-fifth stake in the Bank of Communications came after a review of the mainland bank’s future cash flows, and outlook for loan growth and interest margins
As the largest of Hong Kong’s note-issuing banks, HSBC on Wednesday reported pre-tax profit rose 78% y-o-y to a record US$30.3bil last year.
The Asia-focused bank’s Hang Seng Bank subsidiary witnessed a rise of 58% in net profit to HK$17.85bil (US$2.28bil) in 2023, driven by higher net interest income and operating income.
However, a tapestry of challenges confronting the nation’s economy has cast a long shadow over the banking sector.
This is shown by HSBC’s pre-tax profits falling 80% y-o-y in the fourth quarter last year as it took a US$3bil charge on the value of its stake in China’s Bank of Communications and a further write-down on commercial real estate.
HSBC said the impairment charge for its almost one-fifth stake in the Bank of Communications came after a review of the mainland bank’s future cash flows, and outlook for loan growth and interest margins.
Redmond Wong, chief China strategist at Saxo Markets, said the market intersects with broader economic challenges, encompassing a distressed property sector, impending defaults, and fiscal constraints of local governments.
Last month, a Hong Kong court ordered winding up of the long-embattled property giant China Evergrande, marking the biggest collapse in the country’s real estate meltdown.
HSBC made US$3.4bil in provisions to cover expected credit losses for the year due to Chinese commercial real estate.
“The ailing property market, emblematic of broader economic struggles, requires an extended healing process,” Wong said.
“Anticipated defaults and bankruptcies of Chinese developers, both in their listed holding entities in Hong Kong and business and project entities on the mainland, loom large.”
On a positive note, Hong Kong-based equity commentator Conita Hung Lai-ping said the city’s banks are prudent and capable of riding out renewed headwinds — China Daily/ANN
