HSBC is eyeing higher margins in its Hong Kong lending operations this year amid a tightening of market liquidity due to the tapering of quantitative easing and stricter liquidity requirements of the local regulator.
The leading bank in the city, which saw 13 per cent growth in loans last year, aims to maintain the double-digit growth rate, according to Anita Fung Yuen-mei, chief executive of HSBC's Hong Kong office.
Banks with the bulk of their funds as customer deposits suffered in the ultra-low interest rate environment as excess liquidity drove them to offer cheap credit to compete with rivals for business volume, which in turn pushed down net interest margins, a gauge of lending profitability.
Banks will remain cautious on liquidity flow and loan-deposit ratio
Net interest margins of Hong Kong retail banks fell nearly a third to 1.41 per cent from the beginning of 2008 until now, according to Hong Kong Monetary Authority data.
"The competition on lending will be more rational among the banks," Fung said at a briefing on Friday. "And we saw some improvements in the [downward pressure] on trade-related loans." This in turn helped offset the pressure on lending margins.
Fung noted that the margin on trade financing business fell by a third last year, due to keen competition in an environment of excess liquidity. The net interest margin for HSBC Hong Kong edged up 0.02 percentage point to 1.55 per cent last year.
Due to accelerated loan growth in the first two months, the Hong Kong Monetary Authority brought forward its deadline for banks to review their lending policy from June to the end of March, prompting banks to fight for more deposits to sustain their asset growth.
