Thursday, 26 September 2024
Entry of virtual banks is credit negative for incumbent Hong Kong banks
Moody's Investors Service says that the entry into Hong Kong of eight new virtual banks will create significant competition in key banking areas such as payments, deposit gathering and lending, a credit negative for most incumbent Hong Kong banks.
Over the past three months, the Hong Kong Monetary Authority has granted licenses to eight virtual bank applicants that expect to become operational in the next 6-9 months.
"The commercial viability of the new virtual banks in Hong Kong is supported by the strong regulatory environment, a large population of tech-savvy customers and potential cost savings from branchless operations," says Sonny Hsu, a Moody's Vice President and Senior Credit Officer.
"Hong Kong is a highly mature banking market, and we expect the growth of virtual banks will come at the expense especially of mid-sized and small banks that focus on serving small businesses and individual retail customers," adds Hsu.
The four largest Hong Kong banks, however, have strong franchises that attract sticky deposits and therefore are less vulnerable to deposit competition from virtual banks.
Moreover, BOC Hong Kong (Holdings) and Standard Chartered Bank (Hong Kong) Limited (deposits A1 stable, BCA a3) are partial owners of two of the eight virtual banks, which will allow them to provide low-cost bank services to Hong Kong's large and growing tech-savvy population.
Additionally, large banks derive significant revenue from businesses that are harder for virtual banks to penetrate, including wealth management and most corporate banking businesses.
Re-disseminated by The Asian Banker
