H.K. banks expect profit recovery this year

Asian Economic News, Jan 24, 2000

HONG KONG, Jan. 21 Kyodo

Banks in Hong Kong are generally expecting recovery in profits this year, the Hong Kong Monetary Authority said Friday.

"This is largely driven by the expected reduction in bad debt charges in 2000," David Carse, the authority's deputy chief executive, told a press conference.

The growth of aggregate bad debt charges last year moderated when compared with 1998, he said.

The quasi-central bank, the Hong Kong Monetary Authority, also expects pre-provision operating profits of banks in general to have improved last year due to growth in average interest-bearing assets, maintenance of the net interest margin and reduction in operating expenses.

But further bad debt provisions will arise this year from the downgrading of existing non-performing loans, Carse said.

Some banks continued to see sharp increases in provisions last year, he said.

"It is fair to say those banks whose loan portfolio is mainly to Hong Kong corporates or involving residential mortgages are seeing a lower provision requirement than those who have exposures to (China)-related companies," he said.

Looking ahead this year, the monetary regulator expected some revival in corporate lending as the economy is expanding and investment from the private sector will pick up.

But trade finances will remain difficult because banks are still conscious of changes in the market, Carse said.

Banks in Hong Kong have plentiful liquidity due to a continuing growth in deposits, which saw an 8.2% year-on-year increase in the first 11 months of last year, and continued decline in domestic loans, which posted a year-on-year drop of 8.7% in the same period.

Carse also said Hong Kong will soon issue guidelines on electronic banking to address problems that involve banks outside Hong Kong advertising for deposits in the territory, ownership of virtual banks and online security matters.

"I think we need to get something out clearly quickly because that (e-banking) direction is moving quite fast," Carse said.

"We really always expected that once Y2K was out of the way, Internet banking would become a more important issue," he said.

He cited that many virtual banks have started off with technology concepts, but have given less thought to the banking aspects, such as financial support and operation.

The Hong Kong Monetary Authority will be keeping in touch with other financial regulators in the region as well as the Basel Committee on information related to e-banking matters when developing the guidelines, which will be issued in stages, Carse added.