Hong Kong’s banking sector optimistic about 2022 performance, talent a key priority, finds KPMG analysis

Talent shortage remains a challenge that banks will need to address in 2022

Talent shortage remains a challenge that banks will need to address in 2022

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25 January 2022, Hong Kong – Banks in Hong Kong are looking forward to 2022 with more optimism in terms of their financial performance as higher interest rates should improve margins, while non-interest revenue should also increase, as initiatives such as the Wealth Management Connect offer new growth opportunities, according to KPMG’s latest report.

The KPMG Hong Kong Banking Outlook 2022 provides a number of predictions for the banking industry across 11 key areas. KPMG predicts net interest margins are likely to have bottomed out and with inflation starting to rear its head, several interest rate increases are expected in 2022. Hong Kong banks’ loan books, meanwhile, proved to be quite resilient in the face of a challenging year. Over the year ahead, signs of improved economic sentiment could feed into loan growth.

The report indicates that all banks in Hong Kong are keeping a careful eye on any fallout from credit challenges associated with the Chinese real estate sector. The full impact of any defaults has yet to be felt, but this will be an area to watch in 2022.

Senior management at many banks highlighted the attraction and retention of talent as a key concern. Global demand across all roles, including digital transformation and ESG has been strong. This is likely to remain a challenge that banks will need to address in 2022 and it could limit the extent to which banks are able to realise their ambitions.

Paul McSheaffrey

Paul McSheaffrey, Partner, Financial Services, KPMG China, says:

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From the second half of 2021, there has been an acute contraction in talent in the financial services industry. Our clients have told us that the shortage of talent is proving to be more severe than in previous years and they are facing difficulties in obtaining specialist expertise. The attraction and retention of talent will therefore be a major priority for banks.

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Meanwhile, mainland banks, which have been a growing force in the sector for the last few years, have been focusing on stabilising their operations in Hong Kong.  

Terence Fong

Terence Fong, Head of Chinese Banks, Hong Kong, KPMG China, says:

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Mainland Chinese banks in Hong Kong are looking forward to increased fee and commission income in 2022, particularly since they have a large retail customer base. While risk appetite has decreased over the last year, mainland banks will be looking to develop new income streams and increase the level of digitalisation and collaboration between their mainland and Hong Kong operations.

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Business models in the industry are expected to continue to change on the back of investment in technology. Banks in Hong Kong have continued to increase their focus on digital transformation in all aspects. Technology is being used to improve operational efficiency and reduce costs, including in areas such as KYC and AML. On the customer side, demand has risen for more seamless digital experiences and banks are being pushed to improve their offerings. Digital transformation, which is critical for Hong Kong to retain its position as a leading international financial centre, is expected to remain a key pillar of growth.

Virtual banks in Hong Kong have completed their first full year of operation. While a few have performed well, most are struggling to find a clear path to growth and looking for ways of customer acquisition at lower costs. These banks are also facing stiffer competition from traditional banks that have strengthened their own digital offerings in response to the arrival of the virtual banks.

The report also highlights that there is an increased focus on environmental, social and governance (ESG) for the year ahead. Hong Kong banks are currently tackling increased ESG reporting requirements and regulators are expected to have a common standard in place in 2022. The key challenge for banks will be to manage ESG data, which cannot be underestimated. While the major banks have plans in place to manage this, smaller banks are taking a wait-and-see approach and watching how their larger competitors handle compliance issues. 

Gemini Yang

Gemini Yang, Partner, Financial Risk Management, KPMG China, says:

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Green and sustainable finance, and environmental, social and governance (ESG) have taken priority at many financial institutions in Hong Kong and this will remain the case in 2022. New regulatory requirements mean Hong Kong banks will need to do a lot in a short amount of time. Climate related risk might start off in the risk function, but it will permeate across the rest of the organisation.

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