HONG KONG SAR – Media OutReach Newswire – January 29, 2024 – The year 2024 is expected to present challenges for banks as they prepare to overcome a series of macroeconomic hurdles. It is important for banks to focus on operational efficiency and management of their risks, in order to be ready to reap the rewards of the return of growth in 2025, according to the latest KPMG report.
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KPMG Hong Kong Banking Outlook 2024 provides thoughts and forecasts from KPMG experts on the outlook for Hong Kong and key themes for banks over the year, including preparing for climate risk and staying abreast of tax and regulatory developments.
KPMG expects the challenges facing the banking sector to persist through 2024, as the economic climate remains sluggish, which is expected to result in lower loan growth. The reduction in financial activity will also have an impact on fees and commissions charged by banks.
Interest rates are unlikely to decline until at least the third quarter of 2024. Rising interest rates have generally been positive for banks, which will support their revenues throughout the year. Although credit losses have become a significant trend, it is expected that in 2024 many banks will clean up their books and prepare for future progress.
Jianing Song, Head of Banking and Capital Markets, Hong Kong, KPMG Chinasaid: “The year 2023 saw mixed fortunes for the banking sector and the city. Looking ahead to 2024, there are clouds on the horizon, including potential election results globally. We Let’s remain cautiously optimistic given falling interest rates, controlled inflation and generally a better macroeconomic outlook.” From a business perspective. Hong Kong should continue to reinvigorate and redefine our value under Two Systems, not only as an IFC for China, but also as a superconnector for the rest of the world. ”
Paul McSheaffrey, Senior Banking Partner, Hong Kong, KPMG Chinasaid: “While the coming year may not see significant growth for banks in Hong Kong, there will still be opportunities in an evolving landscape. Outside of Hong Kong, inflation in many jurisdictions is expected to bring more stability to the global economy. Given the expected persistence of a challenging environment into 2024, banks should prioritize operational efficiency and risk management to position themselves to reap the benefits of the return of growth in 2025.”
In the coming year, banks should ensure they anticipate potential risks from different sources, and also stay abreast of the ever-changing regulatory environment in Hong Kong and mainland China. At the same time, banks can stay on the lookout for growth opportunities, like those emerging in the Greater Bay Area.
Managing emerging risks is essential
Business credit will remain challenged in 2024, with the quality and scale of business loan growth under pressure. Accusations of property depreciation outside the continent are also expected to increase. Many banks are reassessing the adequacy of their stress testing methodologies and early warning mechanisms. KPMG recommends that banks strengthen their early warning mechanisms by integrating more forward-looking indices to ensure comprehensiveness and effectiveness.
When it comes to climate risk, collaboration will be essential. By fostering partnerships, data sharing and the development of common standards, the banking sector can collectively combat climate risks and benefit from green financing.
Emphasis on regulatory compliance in business strategies
Data connectivity is an important topic in the digital age, with the Chinese government regularly issuing regulations regarding cross-border data transfer. Data flow is a complex issue that requires appropriate technical infrastructure, including cross-border data inventories and comprehensive control frameworks. Looking ahead to 2024, it is essential that banks prioritize considering cross-border data flows when developing their next business strategies.
To mitigate risks to financial stability, regulators need high-quality data to effectively assess systemic risk, provide market surveillance, and facilitate enforcement and resolution activities. KPMG expects Granular Data Reporting (GDR) to be a priority for banks in 2024. It is imperative to act and establish a robust, scalable and cost-effective solution.
Cross-border connectivity fuels market activities
Despite the generally challenging environment for banks, there are still opportunities for growth. The Greater Bay Area represents a unique private banking and wealth management opportunity with a growing population and economy. We continue to see M&A transactions in the financial services sector and an increase in transactions in the wealth management and private banking sector is expected. KPMG predicts that banks will focus on leveraging Wealth Management Connect 2.0 to enhance their digital wealth management program and ensure a seamless end-to-end customer journey, from onboarding to sale of wealth management products.
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