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Virtual Banks a ‘Major Threat’ to HSBC’s Dominance in Hong Kong

By NexChange
FinTech, Financial Services

Hong Kong’s most dominant bank may have some tough times ahead.

According to the Financial Times, HSBC’s supremacy in Hong Kong could soon be put to the test, thanks to the former colony’s eight upcoming virtual banks.

Analysts say that while there’s very little chance the bank would lose significant deposits to the upstarts, it’s profit margins are a different story. HSBC’s retail operations in Hong Kong is by far its most profitable business, with Goldman Sachs estimating an ROE of 21% – more than twice what the bank made overall. It also scored a net interest margin of 2.06% in the former colony, nearly double the 1.16% and 1.08% it posted in the UK and the US, respectively.

With the digital banks coming however, HSBC could be forced to lower fees and offer better rates.

“Hong Kong retail banking is super-profitable and HSBC, as the dominant bank, is über-profitable,” said Ronit Ghose, banks analyst at Citi. “It is our view that the new virtual banks are a major threat to HSBC’s profitability in the medium to long term.”

In fact it’s already slashed some fees: a monthly charge for customers with less than HKD5,000 in deposits – a fee paid by 3 million of its Hong Kong customers – has already been scrapped, and it is also in the process of eliminating certain small depositor charges, such as counter transactions fees.

Goldman Sachs puts HSBC’s “at risk” Asian revenue at 17%, or $4.8 billion.

That said:

Kevin Martin, head of retail and wealth for HSBC in Asia, said the bank was “alert” to the threat of the new competitors and that it had made improvements to its digital offering.

Photo: Baycrest

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