Hong Kong banks' bad loan ratio improves to 0.52% in 2017

Maintaining credit quality is no problem for the city’s top lenders.

The impaired loan ratio of Hong Kong banks fell from an already stable 0.65% in 2016 to 0.52% as of end-2017 as lenders easily breeze through credit quality tests, according to accounting firm KPMG.

The impaired loan ratio is the number of bad loans over gross loans and advances.

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In a survey of the largest banks, DBS Bank (Hong Kong) booked the highest percentage of bad loans at 1.58% which is even higher than the banking system’s average.

CITIC similarly had a greater bad loan ratio on a year-on-year basis which rose from 0.96% to 1.26% in 2017 as the bank rolled out provisioning policies in light of China’s deleveraging campaign. The impaired loan ratio of CCB (Asia) also rose by 11bp to 0.22% in 2017. On the other hand, BOC (Hong Kong) had the healthiest bad loan ratio of its surveyed peers at 0.12%.

The average cost-to-income ratio of Hong Kong’s largest banks also improved from 47.9% in 2016 to 42.5% as of end-2017 as new revenue streams offset higher operating expenses from digitalisation programmes.

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“Digitisation and automation continue to be a key focus for banks to manage costs and improve customer experience. A number of banks indicated that they increased their spending on innovation in 2017,” KPMG said in a report.