(The following was released by the rating agency)
Link to Fitch Ratings' Report: Hong Kong Banks:
HONG KONG, February 25 (Fitch) Fitch Ratings says in a new
report that Hong Kong's unique relationship with China presents
opportunities for its banks as the latter's financial market
liberalisation proceeds apace. Fitch believes that banks with
international networks are best placed to take advantage of
evolving offshore renminbi markets. However, opportunities also
exist for domestically focused institutions on a smaller scale.
In the report Fitch highlights that persistent risk
monitoring and effective cost management are key if banks are to
derive meaningful and sustainable profit from their broad range
of China-related activities.
Revenue from offshore renminbi activities, including dim sum
bond underwriting, lending and deposit-gathering, thus far
remains limited, and is outweighed by related costs. Fitch
believes that profit contributions from payment processing and
renminbi cross-border trade will remain small over the next two
to three years even though they will undoubtedly grow as volumes
A pick-up in renminbi loan demand will likely have the
biggest profit impact but Fitch does not foresee a material
increase over the near-term. This is because demand from outside
of China may be held back by perceived currency risks and
restrictions on cross-border renminbi lending.
Fitch expects banks to prioritise investments in their own
subsidiary operations on the mainland over increasing their
investments in Chinese banks, some of which are aiming for IPOs
this year. This would give them another opportunity directly to
deploy their renminbi liquidity. Most of the banks' renminbi
deposits are yet to be deployed, as reflected in the low
system-wide loan-to-deposit ratio of 13% at end-2012.
The report, 'Hong Kong Banks: China-Related Opportunities',
is available on www.fitchratings.com or by clicking on the link