2020年香港银行业报告（英文版）.pdf

Adapting to a New Reality kpmg/cn Hong Kong Banking Report 20202 | Hong Kong Banking Report 2020 Contents Introduction Overview Banking in 2030 Regulatory-driven transformationOverviewGovernance, risk and complianceFinancial crime complianceNatural language processing Operational resilience Pricing AML Third Party Risk Management Non-performing loans Workforce management 4 6 1422 24 26 28 30 32 34 36 38 40 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Hong Kong Banking Report 2020 | 3 LIBOR AI in banking T ransaction banking Culture Ta x IFRS 9 and credit risk Suitability ESG Wealth management Customer experience Financial highlights About KPMG Contact us 42 44 46 48 50 52 55 58 61 64 67 94 95 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 | Hong Kong Banking Report 2020 In this years annual Banking Report, we review the financial results of banks in Hong Kong in 2019, and also offer our views and predictions on the future of the industry, especially in light of the onset of COVID-19. In terms of the performance of banks in Hong Kong in 2019, there were some difficult times operationally, but banks generally fared well and profitability was up. Margins held up, costs were flat overall and in line with income increases, credit costs remained low, and the cost-to-income ratio remained fairly stable despite the social unrest in the city in the latter half of 2019. However, the reality of the situation is that the largely positive results in 2019 are likely to be forgotten as the outbreak of COVID-19 has caused significant disruption and challenges to economies, businesses, communities and people worldwide. The effects of COVID-19 are expected to have a significant impact on the results of banks in Hong Kong in 2020 and likely beyond and will change the banking landscape permanently. Indeed, the pandemic has been a catalyst for change in the banking sector, with the industry having to respond, recover and adapt to a New Reality. In our view, as banks respond to the effects of COVID-19, they will go through four phases: Reaction responding to immediate challenges; Resilience managing through uncertainty; Recovery resetting and identifying opportunities; and the New Reality adapting to a new world. Navigating through these phases and adapting to the New Reality will be key for banks in order to continue to grow and succeed, especially with profitability expected to be significantly impacted in 2020. Introduction Paul McSheaffrey Partner, Head of Banking & Capital Markets, Hong Kong KPMG China 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Hong Kong Banking Report 2020 | 5 This is a result of banks facing squeezing margins from a combination of downward pressure on net interest income and an expected increase in credit costs and loan impairment charges. To maintain profitability, many banks will need to place an increased focus on costs as the primary lever. This renewed focus on costs will require banks to restructure and rethink how they are organised, which may take longer to be reflected in their financial results. In this report, we share our views on how we see banks in Hong Kong recovering from the disruption and challenges caused by COVID-19, as well as areas we think banks should focus on in the next 12 to 18 months, such as managing costs, dealing with bad debt, ensuring operational resilience, strengthening third party risk management and shaping the workforce. We also focus on the key topic of regulatory-driven transformation and how we think banks can use technology, automation and other tools and approaches to help significantly improve the quality of regulatory compliance at a lower cost. While this report examines the impact of COVID-19 and what this means for banks as they start to adapt to the New Reality, we also discuss what the banking landscape in Hong Kong might look like in 2030. This long-term perspective builds on our view on what the New Reality might look like in terms of the future of retail banking, customer behaviour and expectations, risk and regulation, the workforce, sustainable finance and Hong Kongs role as an international financial centre. I hope you enjoy our perspective on the sector in 2020, and would welcome the opportunity to discuss the banking results and the current industry landscape. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 Percentage change of GDP from Census and Statistics Department, censtatd.gov.hk/hkstat/sub/sp250.jsp?tableID= 211&ID=0&productType=8 2 HKMA Annual Report, p.4, hkma.gov.hk/media/eng/publication-and-research/annual-report/2019/AR2019_E.pdf 3 The analysis is based on financial institutions registered with the Hong Kong Monetary Authority. 4 The top 10 locally incorporated licensed banks mentioned in this article are the 10 banks with highest total assets among all locally incorporated licensed banks as at 31 December 2019. 6 | Hong Kong Banking Report 2020 Overview Hong Kongs banking sector showed its resilience in 2019 despite a challenging year for the overall economy. The Hong Kong economy contracted by 1.2 percent 1in 2019 (compared to 2.8 percent growth in 2018), the first annual decline since 2009. The global economic slowdown, elevated US-China tensions and the impact of local social unrest contributed to this weakening of the local economy, particularly on international trade and investment. Despite this, Hong Kongs banking sector grew in 2019. The total assets of all licensed banks expanded by 4.8 percent with growth of 6.4 percent in loans and advances. The operating profit before impairment charges for all licensed banks increased by 4 percent from HK$276 billion in 2018 to HK$287 billion in 2019. While there is limited data at present, it is a reasonable prediction that the impact of COVID-19, ongoing US-China tensions and the resulting economic uncertainty will result in a fall in profitability for banks in 2020. After four consecutive years of increases, the US Federal Reserve (the Fed) cut interest rates by 75 basis points in 2019, from 2.5 percent (effective from 19 December 2018) to 1.75 percent, reversing nearly all of 2018s rate increases. The full impact of these cuts was not felt in 2019, and the net interest margin (NIM) for all licensed banks increased by 13 basis points. However, the Fed cut rates to 0.25 percent on 15 March 2020, which will have a negative impact on NIM in 2020. Stepping into the era of Smart Banking, eight institutions were granted virtual bank licenses in Hong Kong in 2019. One of the virtual banks officially launched its services in March 2020 2 , and we expect this could redefine banking services by providing a more sophisticated and personalised experience to customers. Traditional banks will have to respond and increase their competitiveness. In this report, we present an analysis 3of some key metrics for the top 10 locally incorporated licensed banks 4in Hong Kong. While some banks have a dual entity structure in Hong Kong (e.g. a branch and an incorporated authorised institution), we have not combined their results. The analysis is performed on a reporting entity basis. Paul McSheaffrey Partner, Head of Banking & Capital Markets, Hong Kong KPMG China T erence Fong Partner, Head of Chinese Banks, Hong Kong KPMG China 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 NIM is either quoted from public announcements of financial statements, or calculated based on annualised net interest income and interest-bearing assets or total assets, depending on the availability of information. 6 HSBC consolidated results include Hang Seng and its other Asia operations. 7 Hang Seng Annual Report 2019, p.10 vpr.hkma.gov.hk/ statics/assets/doc/100057/ar_19/ar_19_eng.pdf 8 HSBC Annual Report and Accounts 2019, p.10 vpr. hkma.gov.hk/statics/assets/doc/100002/ar_19/ar_19_eng.pdf Hong Kong Banking Report 2020 | 7 Net interest margin 0% 1% 2% 1.5% 1.5% 2.5% 2.20% 2.02% 2.00% 1.85% 1.85% 1.51% 1.51% 146% 1.33% 1.35% Hang Seng HSBC DBS BEA Nanyang CITIC BOC (HK) CCB (Asia) ICBC (Asia) SCB 2019 2018 Net interest margin With three interest rate cuts by the Fed in July, September and October 2019, the Fed rate was lowered by 75 basis points. The HKMA Base Rate was reduced by 25 basis points from 2.75 percent to 2.5 percent as a response. These cuts will take some time to be fully reflected in the NIM 5of banks, and therefore despite the cuts, the NIM performance was stable in 2019 compared to 2018. The average NIM across all surveyed licensed banks increased by 13 basis points compared to 2018. The average NIM for the top 10 licensed banks for 2019 increased to 1.71 percent compared to 1.69 percent in 2018. Eight out of the top 10 banks posted an increase in NIM. Hang Seng Bank Limited (Hang Seng) and The Hongkong and Shanghai Banking Corporation Limited (HSBC) 6continued to post the highest NIM among the top 10 in 2019. Hang Sengs NIM improved to 2.2 percent (increase of 2 basis points compared with 2018), which was mainly due to improved deposit spreads and increased contribution from net-free funds. 7HSBCs overall NIM decreased by 4 basis points (from 2.06 percent for 2018 to 2.02 percent for 2019). However, NIM for HSBCs Hong Kong operations increased by 1 basis point from improved customer deposit spreads and higher reinvestment yields. However, the improvement was offset by mainland China, Australia and Taiwans operations, mainly due to the higher cost of funds. 8Among the top 10 licensed banks, DBS Bank (Hong Kong) Limited (DBS) recorded the largest increase in NIM from 2018 (13 basis points) due to improved deposit spreads. On the opposite side, Nanyang Commercial Bank Limited (Nanyang)s NIM deteriorated by 15 basis points due to higher cost of funds after the issuance of US$700 million subordinated notes at 3.8 percent per annum. Source: Extracted from individual banks financial and public statements 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 | Hong Kong Banking Report 2020 Cost-to-income ratios 0% 10% 20% 30% 40% 50% 60% 70% 23.88% 28.26% 30.01% 37.57% 39.25% 42.62% 43.76% 44.26% 61.76% 50.25% ICBC (Asia) BOC (HK) Hang Seng Nanyang HSBC CCB (Asia) DBS BEA CITIC SCB 2019 2018 Source: Extracted from individual banks financial and public statements In our view, 2020 could be a tough year for Hong Kong banks NIM. The Fed has lowered the US Interest Rate to a record-low of 0.25 percent. The HKMA has followed and lowered the Base Rate to 1.65 percent since March 2020, with consequent falls in HIBOR. We expect that banks will face difficulties in maintaining the same level of NIM in 2020, and the full launch of all the virtual banks could cause price competition for term deposits which will lead to overall margin compression. This is good news for consumers in a low-yield environment, but less positive for the banks. Costs Cost management continued to be an essential focus for banks in Hong Kong to monitor and improve profitability in 2019. After the increase in the average cost-to-income ratio for all Hong Kong licensed banks in 2018, the ratio for the surveyed banks reduced slightly by 69 basis points for the year ended 2019, from 45.44 percent to 44.75 percent. Total operating costs increased by 6.7 percent, from HK$191 billion in 2018 to HK$204 billion in 2019. For 2020, we can expect a significant focus on reducing the absolute level of costs to manage profitability in a low interest rate environment. This will be a tricky balance for banks, which are also be expected to support the overall economy, including potentially maintaining employment. The top 10 surveyed banks showed a 4.7 percent increase in total operating income, offset by a 6.8 percent increase in total operating expenses. The weighted-average cost-to-income ratio of the top 10 banks slightly deteriorated from 40.4 percent in 2018 to 41.2 percent in 2019. Industrial and Commercial Bank of China (Asia) Limited (ICBC (Asia) and Standard Charted Bank (Hong Kong) Limited (SCB) had the lowest and highest cost-to- income ratios, respectively. DBS was the only bank out of the top 10 surveyed banks to record a decrease in its cost-to-income ratio. Despite the challenging environment, DBS managed to reduce its cost-to-income ratio by 81 basis points, contributed by the improved NIM and higher net fee income. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9 CITIC Annual Report 2019, p.11 vpr.hkma.gov.hk/ statics/assets/doc/100040/ar_19/ar_19.pdf 10 SCB Directors Report and Consolidated Financial Statements, p.52 vpr.hkma.gov.hk/statics/assets/ doc/100269/fd_fin/fd_fin_1219_pt01_eng.pdf Hong Kong Banking Report 2020 | 9 China CITIC Bank International Limited (CITIC) recorded the largest increase in cost-to-income ratio among the top 10 banks from 40.25 percent in 2018 to 44.26 percent in 2019. The increase was a combination of lower total operating income and higher total operating costs. Total operating costs were up by 9.2 percent compared to 2018 as th