Editorial | HSBC commitment to Asia welcome as it profits from region
- Hong Kong banks report strong earnings but rates uncertainty signals risks ahead
- With the Fed expected to start cutting interest rates before the end of the year, margins for lenders will narrow, potentially exposing threats in other areas
As Hong Kong’s banks announced annual earnings results this week, the reports of robust profits landed. HSBC and its subsidiary Hang Seng Bank, the Bank of East Asia (BEA), and Standard Chartered all reported solid returns from 2023, with HSBC setting a record as net profit rose by 56 per cent to US$22.43 billion from a year earlier.
Yet, at the same time, missed earnings targets were piling up. Perhaps analysts were too enthusiastic. Or perhaps they were pointing to difficulties on the horizon for big lenders.
The banks, not least HSBC, have seen results bolstered by interest rates at 23-year highs. But the US Federal Reserve, hoping to manage a soft landing for the world’s largest economy, is expected to begin rate cuts later in the year.
And so the tide of interest-related profits will start to ebb, perhaps exposing unsavoury risks on lenders’ balance sheets.
The most unsavoury risk for banks doing business in Asia has been China’s troubled property sector, where developers who built up loans to fuel growth were caught out by a soft domestic market and the very same high rates. The troubles extended into 2024, with creditors petitioning for or pushing major developers into liquidation.
