Hong Kong retail banks’ profits up 4.5 per cent in first three quarters

Hong Kong’s retail banks saw a modest rise in profits in the first three quarters of the year thanks to improved income from foreign exchange activities.

According to figures from the Hong Kong Monetary Authority, retail banks in the city saw their pre-tax operating profits rise by 4.5 per cent in the first nine months of the year in comparison with the same period of 2015.

The HKMA said that the growth could be attributed to increases in both income from foreign exchange and derivatives operations and from dividends received from subsidiaries, while a decline in operating expenses also contributed to the improvement.

The three elements provided increases of 4.5, 3.5 and 4.1 percentage points respectively to the banks’ profitability.

These increases were offset, however, by a fall in fee and commission income, which led to a 7.8 percentage point reduction.

The profit improvement over the first three quarters marks a turnaround in performance after banks had a troubling early part of this year. In the first quarter of 2016, retail banks’ profits fell by 4.8 per cent, albeit in comparison to a strong first quarter in 2015, in which incomes were boosted by large trading volumes in stock markets in both Hong Kong and mainland China.

Last summer’s turbulence in the Shanghai stock exchange, as well as the hit to sentiment from the sudden devaluation of the yuan in August meant that Hong Kong banks had a difficult third quarter in 2015, making it easier to post good figures for the third quarter of this year, as well as the first nine months of the year as a whole.

Banks in Hong Kong received a further boost last week when interest rates rose in the city, following the Federal Reserve’s decision to raise the rate in the US.

The rise in interest rates should enable the banks to gain greater returns on cash that has been deposited with them, which they are unable, or have chosen not, to lend out.

In Hong Kong, this is a sizeable amount, and according to the HKMA’s figures, in the first three quarters, retail banks’ total deposits increased at a faster pace than total loans. This meant that their loan-to-deposit ratio declined to 55.2 per cent at the end of September from 57.0 per cent at the end of June.