The consultancy and professional services firm has given the top-10 banks in the jurisdiction a clean bill of health.

Hong Kong's banking sector showed resilience in 2018, with stable capital and liquidity performance, as well as strengthening profitability, according to KPMG's latest Hong Kong Banking Report.

The total assets of all licensed banks grew by 3.6 per cent compared with the 8.1 per cent seen in 2017. The operating profit before impairment charges of all licensed banks improved slightly on the year before, rising by 15 per cent in 2018 in comparison with 13 per cent in 2017, and amounting to HK$268 billion in 2018 from HK$234 billion in 2017.

After a recent base rate rise by the Hong Kong Monetary Authority, the average net interest margin across the surveyed licensed banks increased by 11 basis points to 1.75 per cent. The average NIM for the top 10 licensed banks rose to 1.69 per cent in 2018 compared with 1.54 per cent for 2017. 

"After many years of reducing or stagnant interest margins, 2018 was the year when US and Hong Kong interest rates started to rise, which flowed through to stronger income for Hong Kong banks.

However, recent global uncertainty has changed sentiment and further rises in rates are unlikely, with the possibility that some of the improved net interest margin could reverse in 2019,” Paul McSheaffrey, Hong Kong head of banking and capital markets, KPMG China, said. 

The average cost-to-income ratio of the surveyed banks meanwhile stood at 44 per cent for the year ended 2018, an increase from 42.5 per cent in 2017 but not as high as the 47.9 per cent seen in 2016.

For the top 10 surveyed banks, the ratio rose to 39.06 per cent as at the end of 2018 from 40.86 per cent in 2017.

KPMG predicts that technology spend among banks will increase in 2019, to boost innovation-driven growth and cut costs in a sustainable way.

"Digital innovation is increasingly a strategic focus for Hong Kong's banking sector. The HKMA has so far granted eight new virtual banking licences. Initially focusing on retail customers and small and medium enterprises, we expect that the services provided will quickly become more sophisticated and that traditional banks will respond. This will bring about a much more competitive and innovative environment,” KPMG said in its report.

The Top 10 licensed banks are:

-- Hongkong and Shanghai Banking Corporation Limited; 
-- Bank of China (Hong Kong); 
-- Hang Seng Bank; 
-- Standard Chartered Bank (Hong Kong); 
-- Industrial And Commercial Bank of China (Asia); 
-- Bank of East Asia; 
-- China Construction Bank (Asia) Corporation; 
-- Nanyang Commercial Bank; 
-- DBS Bank (Hong Kong); and
-- China CITIC Bank International.