Regulator affirms strong capital, asset quality despite global uncertainties
Hong Kong’s banking sector remains resilient and well-capitalized despite the potential impact of recent Middle East conflicts on the United States’ interest rate movements, which could cloud the US inflation outlook, the Hong Kong Monetary Authority said on Monday.
In its Half-Yearly Monetary and Financial Stability Report, the city’s banking industry regulator highlighted challenges ahead from uncertainties such as “global trade tensions, future US interest rate movements, geopolitical risk, and headwinds in certain local economic sectors”.
The HKMA said that the direct impact of recent conflicts in the Middle East on Hong Kong’s banking sector should be manageable, given the city’s relatively modest cross-border exposures to the region.
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However, the institution warned that “a prolonged conflict could disrupt global energy and commodity supply chains, and potentially weigh on global economic growth and the path of US interest rates by clouding the US inflation outlook”.
The report said that as of March, total deposits had increased 3.9 percent since June, reflecting investor confidence in Hong Kong. During the same period, foreign currency deposits increased 8.4 percent, while Hong Kong dollar-denominated deposits decreased 1.7 percent.
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It added that, although the classified loan ratio edged up in the second half of last year to 2.01 percent at the end of December, the overall asset quality remained manageable, with sufficient provisions by banks.
The consolidated total capital ratio of locally incorporated authorized institutions stood at 25.1 percent in 2025, well above the international minimum requirement of 8 percent. The non-risk-based leverage ratio of locally incorporated authorized institutions remained at 8 percent in the same period, exceeding the statutory minimum of 3 percent.
Profitability remains strong, with the aggregate pre-tax operating profit of retail banks increasing 7.3 percent in 2025, and the net interest margin of retail banks rising to 1.57 percent.
The HKMA added that Hong Kong’s real economy experienced solid growth in the second half of 2025, driven by robust export performance and a recovery in domestic demand. It said it expects Hong Kong’s economy to grow moderately this year, supported by sustained goods export growth amid the ongoing artificial intelligence investment boom and further strengthening of domestic demand.
The city’s housing market continues to recover, supported by improving market sentiment and further stabilization of housing prices. However, commercial property prices and rents remain under pressure, the HKMA added.
Contact the writers at oswald@chinadailyhk.com
