Hong Kong banks should play ‘long con’ to reap 2025 growth benefits

2024 is expected to be challenging for Hong Kong banks, KPMG reports.

Banks in China and Hong Kong are advised to play the long con and focus on their operation efficiency and managing their risks in the next 12 months, in order to be ready to reap the rewards when growth returns in 2025, KPMG said in its latest banking outlook.

Expect lower loan growth in 2024 as economic sentiment remains muted, KPMG experts said. The reduced financial activity will also reportedly have an impact on the fees and commissions earned by banks, it added.

Meanwhile, interest rates are not expected to decrease until the third quarter of 2024. This is expected to provide support for Hong Kong banks’ income throughout the year. 

KPMG expects that many banks will clean up their books in 2024 to position themselves for future progress.

“Looking to 2024, there are some clouds on the horizon, including potential election outcomes globally. We remain cautiously optimistic given declining interest rates, tamed inflation, and generally a better macro-outlook from a business standpoint,” said Jianing Song, head of banking and capital markets, Hong Kong, KPMG China. 

Repositioning for the future
The coming year will not see much significant growth for banks in Hong Kong. However, there will be opportunities amidst a changing ladscape, says Paul McSheaffrey, senior banking partner, Hong Kong, KPMG China.

“Outside of Hong Kong, inflation in many jurisdictions should provide more stability to the global economy. Given the anticipated continuation of a challenging environment in 2024, banks should prioritize operational efficiency and risk management to position themselves for reaping the rewards when growth returns in 2025,” McSheaffrey said.

Growth opportunities might emerge from the Greater Bay Area in particular, he added.

There will also be opportunities for M&As and wealth management.

“We continue to see M&A transactions taking place in the financial services sector and an increase in deals within the wealth management and private banking sector is expected,” KPMG said in a report.

Banks are expected to focus on leveraging Wealth Management Connect 2.0 to enhance their digital wealth agenda and ensure a seamless end-to-end customer journey, from onboarding to the sale of wealth management products.

Challenges
The quality and scale of corporate loan growth will remain under pressure in 2024, KPMG warned. 

Banks should also brace for rising non-Mainland real estate impairment charges.

KPMG recommends that banks enhance their early-warning mechanisms by incorporating more forward-looking indices to ensure comprehensiveness and effectiveness.

“In terms of climate risk, collaboration will be key. By fostering partnerships, sharing data, and developing common standards, the banking industry can collectively address climate risks and leverage green financing,” KPMG said.