The need to reduce cost amid a cooler economic outlook poses challenges for banks in 2023
HONG KONG SAR – Media OutReach – 13 January 2023 – The reopening of the border and easing of Covid-19 restrictions were major steps on path towards normality in Hong Kong banking sector, while the Chinese Mainland’s ongoing financial reform will solidify Hong Kong’s role as a financial hub for the nation. However, the sector will continue to cope with challenges posed by the global economic environment, such as high interest rates, rising inflation, and the need to reduce costs, according to KPMG’s latest report.
The Hong Kong Banking Outlook 2023 provides thoughts and opinions from KPMG experts on some of the key issues for banks in the year ahead, including regulatory developments in Hong Kong and the Chinese Mainland, business transformation and digitalization, as well as the rapidly evolving areas of ESG and virtual assets.
Jianing Song, Head of Banking and Capital Markets Sector, Hong Kong, KPMG China, says: “The easing of certain Covid restrictions in the Chinese Mainland towards the end of 2022 was extremely welcome news. The lifting of quarantine for arrivals and an end to the ban on outbound travel were major steps on the path towards normality. In Hong Kong, the increasing relaxation of pandemic-related restrictions in the second half of 2022 has been a major boost. With the ending of virtually all travel and social-distancing measures in January, there is now a real sense of optimism that in 2023 we will truly be able to get back to business.”
While banks are benefiting from increased margins attributed to higher interest rates, there will still be an increasing focus on cost reduction in the year ahead to deliver a lower sustainable cost-income ratio, and enhanced profitability, amid a cooler economic outlook.
Paul McSheaffrey, Senior Banking Partner, Hong Kong, KPMG China, says: “The ending of the low-interest-rate environment has been a shock for many businesses and investors leading to increasing bad debts. The US Fed is very focused on bringing US inflation under control through interest rates and will continue to do so aggressively. Most obviously now that interest rates are rising after many years of low margins, we expect margins to widen, which will benefit banks. However, Hong Kong’s economic environment will impact the amount of fee income that banks earn from wealth management activities by their customers.”
Digital innovation is one way that traditional banks can stand out. The year ahead could provide opportunities for big financial players to acquire interesting assets on the fintech side, helping them improve their own digital offerings while also ensuring that the most exciting fintech innovations reach the market.
Banks will have to keep up with regulatory developments in 2023. A key regulatory development in Hong Kong this year will be the introduction of a licensing regime for virtual assets service providers. Alongside new regulations, a key trend in 2023 will be greater use of market surveillance. With the rise of SupTech, supervisory technology, regulators can use data in a sophisticated way to ensure that banks and other financial operators are avoiding exposure to risks.
Hong Kong banks will also experience increased regulation when it comes to climate risk management. Increased disclosure is becoming mandatory and hence, banks with net zero commitments are expected to pivot their focus from reducing their own emissions to also financing emission reduction in the real economy.
KPMG China believes, as a global financial centre with unique inherent advantages, Hong Kong has served as the gateway throughout the Chinese Mainland’s opening up over more than 40 years, and that role will continue. While the year ahead will be challenging for the banking sector, Hong Kong’s standing as an international financial hub will not diminish.
International banks are continuing to find new opportunities in the Chinese Mainland as regulatory changes to open the sector over the past few years take effect. The range of products that foreign banks in China can offer, such as local public custody licenses, has increased. In addition, many licensing procedures have been simplified. However, rising compliance costs associated with these and other new regulations will add to the challenges for foreign banks in maintaining profitability and growth momentum.
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About KPMG China
KPMG China has offices located in 31 cities with over 15,000 partners and staff, in Beijing, Changchun, Changsha, Chengdu, Chongqing, Dalian, Dongguan, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Hefei, Jinan, Nanjing, Nantong, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Taiyuan, Tianjin, Wuhan, Wuxi, Xiamen, Xi’an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited (“KPMG International”) operate and provide professional services. “KPMG” is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively.
KPMG firms operate in 144 countries and territories with more than 236,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities.
KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in the Chinese Mainland. KPMG was also the first among the Big Four in the Chinese Mainland to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG’s appointment for multidisciplinary services (including audit, tax and advisory) by some of China’s most prestigious companies.
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This content was prepared by Media OutReach. The opinions expressed in this article are the author’s own and do not reflect the view of Siam News.
