Hong Kong's local lenders jostle for market share as Chinese banks encroach into home turf

Mainland-owned banks accounted for 38% of system assets and deposits by 2017.

Hong Kong bank earnings are likely to rise in 2019 on the back of steady lending volumes to the Mainland and a higher interest rate environment, according to Fitch Ratings, although stiffer competition brought about by the proliferation of mainland Chinese-owned banks will continue to threaten the dominance of local lenders.

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The branches and subsidiaries of such banks accounted for 38% of system assets and deposits by end-2017, up from 32% five years ago, data from Fitch Ratings show, although tech upstarts and non-bank financial institutions (NBFI) are also steadily making their presence known.

“[R]ising competition in the local market could largely offset these positive trends, particularly for smaller banks, whilst there is a risk that banks shift into higher-yielding assets to support their margins,” the credit rating agency said in a report.

Competition is likely to be intense in the mortgage market where banks financed less than half of the property purchases in the first half of 2018, added Fitch, with lending coming from companies related to property developers and NBFI.

“Room for even the larger banks to raise mortgage rates will be limited in this crowded market, while small to medium-sized banks will find it very challenging. Banks' revenue contribution from mortgages is low, but they compete for mortgage shares to facilitate wider relationships with customers,” added Fitch Ratings.