Domestic banks saw first-quarter net profits from their Hong Kong branches shrink 25 percent on an annual basis to NT$4.8 billion (US$159.83 million), the first drop in the past four years, due to higher loan-loss provisions and lower interest income, Financial Supervisory Commission data showed.
Local banks’ branches in the financial hub saw interest income fall after the Hong Kong Monetary Authority in March lowered its base interest rate to 0.86 percent, compared with 2.75 percent a year earlier, the data showed.
Those branches set more loan-loss provisions out of concerns that some loans might turn sour due to the COVID-19 pandemic disrupting production and weakening market demand, Banking Bureau Chief Secretary Phil Tong (童政彰) said.
The branches saw wider valuation losses on their financial investments as the Hang Seng Index slid to a three-year low, a decline similar to those of major equity markets in Taiwan and the US, Tong said.
The Hang Seng yesterday extended the downtrend by closing down 0.74 percent to 22,961.47 points, as the passage of Hong Kong national security legislation spurred speculation about capital flight and prompted concerns that the law would jeopardize the territory’s status as an international financial center.
Hong Kong has been an important overseas market for local banks due to the territory’s advantages, including the lack of a limit on fund flows, clear regulations, a friendly tax system and low tax rates, Tong said.
Nineteen of the nation’s 35 banks have set up branches in Hong Kong, with the banks’ net profits in the territory accounting for half of their overseas net profits, Tong said.
“Local banks should keep close watch on the changes in Hong Kong’s political and economic situation, regulations and market sentiment. They should consider these factors when resetting their risk appetite,” Tong said.
There has not been a significant capital outflow from the territory, but in the first three months of this year, the banks’ combined deposits have dropped NT$29.5 billion to NT$1.13 trillion, Tong said.
By comparison, the banks’ lending rose NT$30.2 billion quarterly to NT$638 billion, Tong said, adding that the gain might be attributable to new loans granted to firms affected by the pandemic.
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