• Retail banks to have a slow but steady growth until 2023
  • HSBC dominates the Hong Kong retail bank market
  • Retail banks remain focused on digital transformation

The banking sector sees slow but stable growth, and expansion in digital offerings. Financial markets are expected to improve their interest income, as a result of the Hong Kong Monetary Authority's (HKMA) monetary easing.

Arthur Yuen Kwok-hang, deputy chief executive of HKMA said, "With the US to increase interest rates this year, banks are likely to see an improvement of their interest income in the coming year".

The banking sector expects that growth will be boosted by mainland China's and Hong Kong's continuing economic development. According to the Financial Secretary’s Office, Government of the Hong Kong Special Administrative Region, “Hong Kong’s exports of goods are likely to benefit from a further revival of the external trading environment in 2021. Mainland China’s economy is expected to sustain strong growth”.

Retail banks to have a slow but steady growth until 2023

Retail banking loans grew at an accelerated rate of 8.5% in 2021, up from 5.7% in 2020. An average of 9% year-on-year expansion in retail loans is forecasted to continue until 2023, led by retail mortgages and personal loans.

Total retail deposits increased by 7.2% in 2021, and while this trend is expected to continue, the rate of growth is expected to slow down over the next two years. Retail bank revenues gradually recovered by 1% in 2021, following a 4.5% drop in the previous year.

HSBC dominates the Hong Kong retail bank market

HSBC, Bank of China Hong Kong, and Hang Seng Bank maintained their dominance in the retail banking market, accounting for more than half of retail loans in 2020. In retail deposits, HSBC held nearly half of the market in 2020, with a total value of HKD 3.3 trillion ($423.1 billion).

Standard Chartered Bank Hong Kong was a standout performer among retail banks in 2020 due to its digital transformation initiatives during the pandemic. The bank developed digital ecosystems to provide seamless and contactless services.

Retail banks remain focused on digital transformation

Banks shifted their focus on digital transformation across the board. Technology is seen to contribute not only to operational and cost-efficiency but also in know your customer (KYC) and anti-money laundering (AML) measures. The demand for digital banking is mainly driven by convenience, safety, and real-time online transaction experience of customers.

All eight digital banks in Hong Kong have been fully operational since 2020. According to Fitch Ratings, the competition among the Hong Kong digital banks will remain muted this 2022. The focus remains on Hong Kong banks' move to a more technology-based business model. This initiative aims to assist banks in reducing costs and expanding their market share. Customer experience, regulatory compliance and risk management are essential components in this bank transformation.

Retail banking is likely to expand slowly but steadily through 2023, while the pandemic continues. With Hong Kong banks refocusing their efforts on strengthening digital products, fiercer competition in retail banking should be expected.

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