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HKMA Deputy Chief Executive Officer Arthur Yuen says banks will continue to face challenges this year as Hong Kong suffers its worst recession on record.
The HKMA (Hong Kong Monetary Authority) on Thursday (Feb 4) revealed that the average profit before tax among retail banks sits at 29.4 percent during 2020.
Net interest margin fell to 1.18 percent in 2020 from 1.63 percent in 2019, while total loans grew just 1.2 percent in 2020, compared to growth of 6.7 percent. in 2019.
At the end of September 2020, the classified loan ratio, the bad and bad loan ratio, rose to a four-year high of 0.84 percent, up from 0.57 percent in 2019.
“Local banks will continue to face a difficult time this year because [ongoing] the pandemic is [piling weight on] the worst recession ever in the city, ”HKMA Deputy Chief Executive Officer Arthur Yuen told a news conference. “We are discussing with the banks to find a way to safeguard the sector while helping the economy to recover.”
Hong Kong’s GDP contracted 3 percent in the fourth quarter, ending 2020 down 6.1 percent for the full year. The last time a similar decline was observed was the 5.1 percent drop in GDP in 1998 amid the Asian financial crisis.
However, the capital ratio and deposits of Hong Kong banks remained strong, Yuen said. “The banking sector as a whole is still doing well, as the capital ratio stood at 20.3 percent and total deposits increased 5.4 percent last year, among the highest in the world. The local banking sector remains very stable and resilient. “
According to Yuen, Hong Kong is also not experiencing outflows of funds as a result of the national security law, as observers expected.
He said banks have no legal obligation to comply with sanctions imposed by the United States in response to the law, but that they must consider any risk factors in their relationships with clients and HKMA will respect these decisions.
Yuen said the recent account closures of pro-democracy activists and lawmakers arrested under the national security law were not for political reasons. “Hong Kong banks must comply with requests for investigative assistance from law enforcement agencies,” he said.
HKMA’s focus areas for the coming year include credit risk, cyber and operational resilience, digitization, financial crime, benchmark transition, regtech and suptech initiatives, and green and sustainable banking.
Additional reports from SCMP, Reuters.
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