Three major areas of growth for banks in Hong Kong
In the ten years since the global financial crisis, the overwhelming focus for banks has been on reducing costs and managing risks. However, the landscape is starting to change, and the investments that banks have made to improve their risk management and governance are starting to pay off. Amid rising interest rates and decreasing regulatory spending for banks, we believe that 2018 will be a year of growth for banks.
To achieve this growth, there are a number of developments and opportunities for banks in Hong Kong to consider. While Hong Kong’s mature market poses a challenge – competition is fierce and the city boasts an extremely high banking penetration rate (~96 percent) – we see three major areas of growth for banks in Hong Kong.
First, despite the buzz – and sometimes confusion – around how best to apply fintech, we see an unprecedented opportunity for banks in Hong Kong to increase their revenue and reduce costs. Fintech will provide revenue generating opportunities by facilitating the introduction of new products and driving cross-selling of relevant and tailored products, as well as unlocking previously uneconomic customer segments – including both retail and SME clients – that can now be profitably served. Furthermore, fintech can help defend/drive revenue growth by catering to the needs of today’s digitally-savvy millennials (who make up about 29 percent of Hong Kong’s workforce), as well as ‘new economy’ – and increasingly tech-savvy ‘old economy’ – companies.
Second, mainland China continues to drive opportunities for banks in Hong Kong. The integration of Hong Kong into the mainland is leading to an increasing number of mainland Chinese individuals living and working in Hong Kong, and mainland corporates seeking to raise capital and use Hong Kong as the headquarters of their international divisions. This trend is going to continue, and banks need to ensure that they create propositions that are more tailored towards mainland Chinese corporates and retail customers. Furthermore, wealth and asset management continues to be a profitable business for banks in Hong Kong, and the city remains the first stop for mainland Chinese clients looking to manage their wealth globally. This is particularly notable as we are starting to see a once in a lifetime intergenerational wealth shift in China. Banks therefore need to think about how to capitalise on this opportunity and offer more sophisticated ways to manage wealth for a new generation of high-net-worth individuals.
Lastly, there are plenty of opportunities for banks in Hong Kong to take advantage of financing the Belt and Road initiative, while the city’s role as a ‘super-connector’ to the Asia Pacific region and beyond will offer new avenues of growth.
For more information on key focus areas for banks in Hong Kong, please read our latest annual 2018 Hong Kong Banking Outlook.