(30 January 2013 – Hong Kong) Hong Kong banks have felt increasingly threatened as competition intensifies with incoming foreign banks, in particular aggressive Chinese banks.A new report says small Hong Kong banks risk being marginalised while their larger counterparts would see their rating upside capped by rising margin pressure.
Foreign and Chinese banks account for about 95 percent of the Hong Kong banking system, as they continue investing in the territory to tap one of the highest-growth markets, greater China.
In particular, Chinese banks significantly increased their presence in Hong Kong to about 15 percent of system-wide assets at end of the first half 2012, up from 9 percent at end-2009.
The foreign bank-dominated market with significant cross-border exposures also renders the system-wide liquidity vulnerable to stress in other banking systems and economies.
Foreign banks may view the small Hong Kong banks as takeover targets as they look to boost market presence via these banks’ established branch network.
Chinese banks will continue to expand their Hong Kong operations and use them as an offshore banking platform to source United States and Hong Kong dollar funding.