PROPERTY RISKS MANAGEABLE FOR HONG KONG BANKS

PROPERTY

Hong Kong banks’ profitability will be supported by strong net interest margins in 2023, whilst property-related risks should be manageable, according to S&P Global Ratings’ latest 2023 global banking outlook report.

Stronger net interest margins should support bank profitability, carrying forward the benefits from the several rounds of monetary policy tightening.

One downside for Hong Kong banks is the ongoing uncertainty around border restrictions with Mainland China, which could subdue wealth management and bancassurance activity. This in turn could limit fee income growth next year, said Shinoy Varghese, Primary credit Analyst for Hong Kong, S&P Global Ratings.

On a more positive note, Varghese said that credit cost could improve to about 25 bps in 2023 from an estimated 35 bps in 2022.

Real estate outlook

Real estate risks from China should also remain manageable. This is thanks to Hong Kong banks having built sizeable provisions for exposure to the sector beginning the second half of 2021. The property sector is also benefiting from policy support measures in Mainland China.

According to S&P Global Ratings, Hong Kong banks have moderate exposure to China commercial real estate at an estimated 5% to 10% of the total consolidated loan book on an average. A sharp correction in the property market is also unlikely, Varghese said.

“Rising interest rates and protracted migration have dampened property buying and caused moderate downward price adjustment by about 8% YTD from a higher base. A structural housing shortage will continue to anchor Hong Kong’s residential prices,” he noted.