Banks face some tough decisions if they want to remain profitable in the months ahead after coming out of the virus-induced lockdowns in Hong Kong, a report said.

A survey of Hong Kong banks by top-flight accountancy firm KPMG found that banks licensed in the jurisdiction grew assets and loans last year. But the ravages caused by COVID-19 will force lenders to adapt fast. Maintaining profits means tighter cost control, it said.

Banks logged a 4.8 per cent year-on-year rise in assets to HK$21 trillion ($2.71 trillion) in 2019 and loans hit HK$10 trillion, rising by 6.4 per cent, KPMG said in a report yesterday. 

The operating profit before impairment charges for all licensed banks rose by 4 per cent from HK$276 billion in 2018 to HK$287 billion in 2019. 

The average net interest margin across all surveyed licensed banks rose by 13 basis points to 1.79 per cent in 2019; the top 10 locally incorporated licenced banks had the highest total assets increasing by 2 basis points to 1.71 per cent in 2019, driven by wider customer deposit spreads.

The report referred to how the coronavirus pandemic has hit banking and will have to be overcome; it did not refer to Beijing’s controversial national security law that has been imposed on Hong Kong, a move that activists and several foreign governments have condemned. 

The findings came in the 32nd annual edition of the KPMG Hong Kong Banking Report 2020. 

"There were some difficult times operationally in 2019 but banks generally fared well and profitability was up. Moving into 2020, the onset of COVID-19, coupled with macroeconomic uncertainty, is likely to have a significant impact on profitability as banks grapple with challenges in generating revenue, as well as rising credit impairment costs that cannot be avoided,” Paul McSheaffrey, partner, head of banking and capital markets, Hong Kong, KPMG China, said.

“To maintain profitability, many banks will need to place an increased focus on costs as the primary lever to manage profitability,” he said.