Hong Kong banks can leverage AI and trade changes for growth amid global challenges: KPMG The adoption of artificial intelligence (AI) and corporate realignment in response to trade and tariffs is expected to present significant opportunities for Hong Kong banks, according to a KPMG executive. Opportunities would arise as the financial performance of the city’s banking sector this year might lack growth drivers, with “interest rates, margins and loans unlikely to change significantly”, said Paul McSheaffrey, senior banking partner for Hong Kong at the consultancy. Last year, Hong Kong banks posted asset and profit gains as strict cost controls and an increase in customer deposits offset weak loan demand and rising credit risks amid global uncertainty, according to a KPMG report published on Wednesday. The total assets of all licensed banks rose 4.5 per cent to HK$24 trillion (US$3.1 trillion) in 2024 from the previous year, while operating profit was up 7.8 per cent. Although loans and advances declined 2.3 per cent, customer deposits increased 4.1 per cent due to the limited interest rate cuts last year. The banks’ average cost-to-income ratio declined by 38 basis points from 42.6 per cent in 2023 to 42.2 per cent in 2024. “We should expect cost discipline to remain, as revenue may be harder to come by amid expectations of more moderate rate cuts,” McSheaffrey said. One of the opportunities for Hong Kong banks to cut costs is through the adoption of AI, the consultancy said. “We are starting to see banks use AI to process transactions or to take over tasks from staff, rather than just helping with productivity,” he said. “These areas should carry bigger returns to offset the still-expensive AI implementations.” The high implementation costs of new technologies like AI were expected to decrease over time as they became more widespread and developed further, McSheaffrey added. On trade and tariffs, Hong Kong could reap the benefits as companies readjusted their sourcing and manufacturing, which would also benefit banks as companies sought financing for these moves, McSheaffrey said. “Hong Kong is a free port with zero tariffs, meaning it could be more attractive as a part of supply chains as companies reassess sourcing and manufacturing locations,” he said. While concerns existed for global growth amid tariffs, the situation could present an opportunity for Hong Kong and, by extension, its banking sector, he added. The international finance hub would continue to provide essential services as a bridge between mainland China and the rest of the world as the global trade and business landscape evolved, the consultancy said in the report. The Hong Kong government’s move to build the city into a virtual asset hub, including establishing a statutory framework for stablecoins, should be a boon for banks, McSheaffrey said. Stablecoins are digital tokens pegged to a reference asset like a fiat currency. “Banks can apply to be issuers and custodians, but importantly, there remains a role for banks as intermediaries in the realm of virtual assets, including stablecoins,” he said. “The vast majority of people value the role that banks play as trusted intermediaries, which is crucial for [companies] looking to transact in stablecoins without having to manage the complexities of blockchain security.” Potential stablecoins in Hong Kong dollars and Chinese yuan would provide opportunities for banks to build risk management products and potentially facilitate trade transactions, according to McSheaffrey. One key challenge for the city’s banking sector was credit losses, primarily related to the property sector, McSheaffrey said. In 2024, the bad-loan ratio for Hong Kong banks climbed to 2.15 per cent from 1.65 per cent a year earlier, according to the KPMG report. While non-performing loans in Hong Kong might rise over the next 12 to 18 months, they could be managed through proactive write-offs, improved risk-based pricing and digital underwriting for quicker identification of at-risk borrowers, McSheaffrey said. https://www.scmp.com/business/banking-finance/article/3316389/hong-kong-banks-can-leverage-ai-and-trade-changes-growth-amid-global-challenges-kpmg (ICE HONG KONG)

Fonte notizia: South China Morning Post