Overview of financial results

All surveyed licensed banks saw their average NIM⁷ decline by just 1 basis point from 2023, reflecting the movement in interest rates over the year. Interest rates remained high until September 2024, when the U.S. Federal Reserve’s rate cuts eased funding cost pressures and reduced asset yields.

Despite the marginal NIM contraction, total net interest income for all surveyed banks fell by 5.9%, from HK$314 billion in 2023 to HK$295 billion in 2024, mainly due to weaker loan growth. The average NIM for the top ten banks decreased from 1.65% in 2023 to 1.59% in 2024, with eight of the top ten recording decreases.

Among these, only China Construction Bank (Asia) Corporation Limited (CCB (Asia)) and Nanyang Commercial Bank, Limited (Nanyang) recorded year-on-year NIM improvements. Consistent with 2023, DBS Bank (Hong Kong) Limited (DBS), Hang Seng Bank, Limited (Hang Seng) and The Bank of East Asia, Limited (BEA) recorded the three largest NIMs in 2024.

Notably, CCB (Asia) recorded the largest increase of 23 basis points, from 1.41% in 2023 to 1.64% in 2024. While half the surveyed banks experienced declines in 2024, CCB (Asia) improved its NIM by expanding its loan portfolio faster than time deposits and leveraging its cross-border banking advantage⁸.

Similarly, Nanyang’s NIM rose modestly from 1.52% in 2023 to 1.55% in 2024 through strategic pivots. The bank has been expanding its offshore RMB loans, increasing green financing and targeting emerging industries⁹, all while maintaining disciplined risk management practices.

Weaker loan demand caused Hang Seng’s NIM to fall by 10 basis points, from 2.30% in 2023 to 2.20% in 2024, as loan spreads narrowed¹⁰.

BEA’s NIM decreased by 5 basis points, from 2.14% in 2023 to 2.09% in 2024. Net interest income declined by HK$345 million, or 2.0%, to HK$16,529 million, mainly due to intensified competition and declining market interest rates¹¹.

DBS’s NIM decreased slightly from 2.28% in 2023 to 2.27% in 2024. While net interest income grew by HK$136 million, or 1.3%, this was overshadowed by a 1.7% increase in average total assets, resulting in a marginally lower NIM.

Looking ahead, we believe Hong Kong banks’ profitability in 2025 will depend on how trade tensions unfold and the U.S. Federal Reserve‘s response to any inflation caused by tariffs. If tariffs cause only mild inflation and are economically contained, the Fed may maintain current rates for a longer period, further stabilising NIMs. Nevertheless, if tariffs meaningfully dent U.S. growth, rate cuts could follow to stimulate the economy, compressing NIMs but potentially reviving trade financing demand.

Current and savings account (CASA) balances made up 42% of total deposits at surveyed banks by the end of 2024, marginally down from 43% by the end of 2023. As interest rates are most likely to hold steady through 2025, we expect minimal change in deposit composition, as customers have fewer options to chase higher yields or flee to liquidity assets.

Banks in Hong Kong maintained strict cost control in 2024, facing a challenging operating environment of flat net interest margins, subdued loan demand and economic uncertainty. Efforts to boost operational efficiencies, including digital transformation and workforce optimisation, reduced overheads and helped decrease the average cost-to-income ratio by 38 basis points from 42.6% in 2023 to 42.2% in 2024.

The improvement came as operating income grew 7.1%, outpacing the 6.1% increase in operating expenses across all surveyed banks. Despite ongoing challenges in acquiring and retaining talent across the banking sector, total staff costs increased only slightly by 3.3% in 2024.

Among the top ten surveyed banks, total operating income grew 6.6%, slightly ahead of the 6.5% rise in total operating expenses. As a result, their weighted average cost-to-income ratio fell slightly from 41.3% in 2023 to 41.1% in 2024. While the average ratio decreased, only four banks lowered their ratios year-onyear, with the other six experiencing increases.

Among these, Bank of China (Hong Kong) Limited (BoC (HK)) and Standard Chartered Bank (Hong Kong) Limited (SCB) continued to record the lowest and highest cost-to-income ratios at 24.9% and 59.0%, respectively. BoC (HK) and Industrial and Commercial Bank of China (Asia) Limited (ICBC (China)) stood out as the only institutions to achieve cost-to-income ratios below 30%. In contrast, SCB was alone in having a cost-to-income ratio above 50%.

CCB (Asia) recorded the largest reduction among the top ten, with its cost-toincome ratio dropping from 35.6% in 2023 to 30.4% in 2024. This was achieved through a 0.4% reduction in operating expenses from workforce optimisation and a 16.7% increase in operating income. This revenue growth stemmed from improved net interest income on an expanded loan portfolio, plus increased net fees and commission income from the bank’s growing investment and insurance services¹².

SCB posted the largest increase in cost-to-income ratio, rising from 57.4% in 2023 to 59.0% in 2024, as operating expenses increased by 9.3%, outpacing comparatively slower operating income growth of 6.4%¹³.

Total gross loans and advances of all surveyed banks fell by 2.3% to HK$9,502 billion by the end of 2024, following a 3.1% decline in 2023. Despite monetary easing, loan demand remained subdued due to ongoing economic caution and structural challenges. Both households and businesses, concerned about the ongoing uncertainty in the local property market and China’s tepid post-pandemic recovery, postponed borrowing decisions. Banks also maintained disciplined lending and tighter credit standards to mitigate risks.

Commercial loans, mortgage lending and loans for use outside Hong Kong continued to dominate loan portfolios, representing 89.2% of total loans in 2024 compared with 89.4% in 2023. Loans for use outside Hong Kong and commercial loans remained the two largest segments, with balances remaining relatively stable across all products.

Among the top ten surveyed banks, gross loans and advances fell by 2.1% to HK$8,207 billion, following a decrease of 3.6% in 2023. While overall gross loans and advances contracted year-on-year, four of the top ten banks achieved portfolio growth.

Nanyang recorded the largest relative decrease in gross loans, from HK$299 billion to HK$269 billion (down 10%) in 2024. This reduction was driven by subdued credit demand and the bank’s prudent risk management, which included stricter credit underwriting and strategic divestment from higher-risk exposures¹⁴.

In contrast, CCB (Asia) saw the largest increase, with gross loans rising from HK$264 million to HK$278 million (up 5.2%), capitalising on its cross-border synergies¹⁵.

The Hongkong and Shanghai Banking Corporation Limited (HSBC)’s gross loans and advances, which cover its Asia Pacific operations, decreased by 1.8% to HK$3,530 billion, mainly due to a HK$54 billion net decrease in corporate and commercial lending primarily in Hong Kong¹⁶, especially in the real estate and construction sector¹⁷.

BoC (HK)’s gross loan balances fell 1.6% to HK$1,682 billion, as corporate loans and advances dropped from HK$1,105 billion to HK$1,079 billion¹⁸. The bank reduced lending both outside Hong Kong and in property development, resulting in the overall decrease.

Hong Kong’s property market faced continued strain in 2024, driven by China’s real estate crisis and subdued mainland demand. Falling collateral values and weaker borrower solvency pushed local banks’ impaired loan ratios higher, keeping credit quality under pressure. The impaired loan ratio19 for all surveyed banks increased from 1.65% to 2.15%, while for the top ten, it increased from 1.62% to 2.07%.

Among the top ten, CCB (Asia) posted the lowest impaired loan ratio at 0.33% in 2024, down from 1.07% in 2023, mainly due to increased write-offs. In contrast, Hang Seng’s impaired loan ratio jumped from 2.83% in 2023 to 6.12% in 2024, the biggest rise among the top ten, driven by commercial real estate exposures in Hong Kong amid weak demand²⁰.

Only three of the top ten surveyed licensed banks improved their impaired loan ratios in 2024: CCB (Asia), through increased write-offs; China CITIC Bank International Limited (CNCBI) with a drop from 2.28% to 2.13% due to better quality loans and trade finance²¹; and ICBC (Asia), whose ratio declined from 1.55% to 1.42% after higher write-offs²².

Credit conditions in Hong Kong remained under strain in 2024 amid rising impaired loans, especially in commercial property and SME sectors. Property values in commercial property came under more pressure as supply outpaced demand. The ongoing impacts of weaknesses in the Chinese Mainland property sector added to the pressure. China’s broad economic stimulus package²³ in late September 2024 – covering monetary easing, fiscal support, housing market stimulus and capital market measures – offered partial relief. However, rising geopolitical tensions and tarrifs further strained cross-border financial flows and investor confidence.

Banks will likely face ongoing pressure from higher provisions and narrowing margins. To adapt, they should consider different strategies to mitigate risks, possibly diversifying away from property-heavy portfolios and accelerating digital transformation to improve cost efficiency in this volatile environment.

On the retail side, many banks lowered their best lending rates three times between September and December 2024, reducing rates by a total of 62.5 basis points to match U.S. Federal Reserve rate cuts²⁴. The lower rates helped ease mortgage payment burdens for borrowers.

Falling house prices increased the aggregate value of residential mortgage loans in negative equity from HK$131.3 billion at the end of December 2023²⁵, to HK$195.1 billion by the end of December 2024²⁶. The figure had reached HK$207.5 billion at the end of September 2024 before the U.S. Federal Reserve’s rate cuts alleviated borrowing costs.

Most negative equity cases involved bank staff housing loans or mortgages under the Mortgage Insurance Programme, which allows higher loan-to-value ratio. This was evident in the mortgage delinquency ratio, which increased slightly from 0.08%²⁷ in 2023 to 0.11% in 2024²⁸, though it remains low by historical standards. Banks’ residential mortgage loan portfolios continue to present low risk.

Looking ahead to the remainder of 2025, the credit quality outlook for Hong Kong banks will remain nuanced. Geopolitical uncertainties – particularly U.S.-China tariff risks and difficult-to-predict U.S. Federal Reserve policy, remain prominent. While the Chinese Mainland economy shows signs of improvement, supported by government policies initiated in late September 2024 (including monetary easing, fiscal support, housing market stimulus and capital market measures), domestic property market vulnerabilities persist and require close monitoring.

These dynamics could strain asset quality in trade-linked and high loan-to-value segments, but Hong Kong banks can navigate the evolving landscape through proactive measures. These include portfolio diversification, tighter sector risk controls, and digital underwriting tools. Banks should remain vigilant and carefully assess how macroeconomic variables could impact loan quality. To balance growth with stability, banks should maintain strong capital management and embrace flexible pricing strategies.