Hong Kong Commercial Banking Report Q2 2008

In March 2008, we updated all data for the 59 countries surveyed with official figures, sourced from central banks and regulators. In most cases, we were able to find data that pertained to the end of 2007: in almost all other cases, the data pertains to September 30 2007. As a result, the insights that we derive on particular countries are based on consistently sourced information that is far more current than it had been previously.

Although we gather data for countries such as the US, Japan, Australia and the eurozone, the vast majority of the 59 countries whose banking industries we survey are, or are generally seen as being, emerging markets. For all the widely publicised problems of large banks in developed countries, in the wake of the subprime banking crisis in the US, 2007 was an extremely good year for the banking sectors of the emerging markets. In local currency terms, the median growth in assets was 21% (in Brazil). The median rates of growth in loans to non-bank customers and in deposits were 22% (in India) and 18% (in Morocco). In some countries - and not just those enjoying oil booms - the figures were spectacular. In Ukraine, for instance, assets and deposits rose by 76% and 62% respectively. Loans grew by more than one-third in Bulgaria, Estonia, Latvia, Lithuania, Romania, Russia, Serbia, Slovenia, Peru, Bahrain, Iran and Nigeria. Deposits also rose by more than one-third in most of these countries.

In absolute terms, Hong Kong's banking sector enjoyed reasonable growth through the year to December 31 2007. In local currency terms, total assets, total loans and total deposits increased by 25%, 20% and 23% respectively. Of the 59 countries surveyed, China ranks 24th in terms of local currency asset growth, 34th in terms of local currency loan growth and 15th in terms of local currency deposit growth.

Hong Kong's rankings in terms of its loan/deposit, loan/asset and loan/GDP ratios are 56th, 56th and second, respectively. While the first two ratios were falling, the loan/GDP ratio increased. This is in a country with per capita GDP of US$28,443 and deposits per capita a high US$104,509.

In Q108, we envisaged that total assets, total loans and total deposits would rise by 5%, 6% and 8% annually through the 2007-2012 forecast period. Now, and using an improved forecasting method, we are looking for growth rates of 15%, 13% and 14% respectively.

Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns: it does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns: this reflects BMI's assessments of overall country risk, together with the regulatory and competitive environment.

Hong Kong's overall CBBER is 81.6. The equivalent figures for the US and the eurozone are 84.8 and 84.6, respectively. Hong Kong's CBBER is higher than that of any other country in the Asia Pacific region. Australia and Singapore offer the closest comparison (at 77.0), followed by South Korea (at 74.8).

Within the CBBER, the most important aspect is the (banking) market structure of the limits of potential returns. This accounts for 42% of the overall CBBER. Hong Kong's rating for this element - 79.4 - is slightly lower than the overall CBBER and about the same level as the country element of the limits of potential returns - 78.9. By both regional and international standards, Hong Kong scores very highly in both the market risks (96.7) and the country risks (80.9) of the risks to the realisation of returns Hong Kong's economy continues to perform strongly, as domestic consumption remains robust and the knock-on effects of China's booming economy continue to provide a boost to the territory. However, while consumption is set to remain strong, a softening of external demand for Hong Kong exports as a result of a slowing US economy is a downside risk to growth. Nonetheless, demand from China will help support Hong Kong's merchandise exports and global demand for services from the territory will maintain their current robust momentum. We are forecasting Hong Kong's real GDP to expand 5.6% in 2008, and while this will be down slightly from the 6.2% growth witnessed in 2007, it will nevertheless remain robust.

• Executive Summary
  • Table: Levels (HKD)bn)
  • Table: Levels (US$bn)
  • Table: Levels At December 31 2007
  • Table: Annual Growth Rate Projections, 2007-2012 (%)
  • Table: Ranking Out Of 59 Countries Reviewed In Q208
  • Table: Projected Levels (HKDbn)
  • Table: Projected Levels (US$bn)
• Key Issues
• Changes To The Commercial Banking Forecast
• Commercial Banking SWOT
• Hong Kong Commercial Banking SWOT
• Hong Kong Political SWOT
• Hong Kong Economic SWOT
• Hong-Kong Business Environment SWOT
• Commercial Banking Business Environment Rating
  • Table: Hong Kong Commercial Banking Business Environment Ratings
  • Table: Asia Pacific Commercial Banking Business Environment Ratings
• International Context
• Lending Trends And External Accounts
  • Table: Comparison Of Lending Trends And External Accounts, End-2007
  • Table: Comparison Of Lending Trends And External Accounts (% of GDP)
• Total Assets, Client Loans And Client Deposits
  • Table: Comparison Of Total Assets, Client Loans And Client Deposits (US$bn)
• Per-Capita Deposits
  • Table: Comparison Of Per-Capita Deposits, Late 2007 (
• Macroeconomic Trends And Developments
  • Table: Hong Kong Economic Activity
• Industry Forecast Sce25
  • Table: Annual Growth Rate Projections, 2007-2012 (%)
  • Table: Projected Levels (bn Units of Local Currency)
  • Table: Projected Levels (US$bn)
• Comment On Developments In 2007
• Comment On Forecasts
• Comment On Trends And Ratios
  • Table: Comparison Of Loan/Deposit, Loan/Asset And Loan/GDP Ratios - Asia Pacific, Late 2007
• Banks' Bond Portfolios
  • Table: Bond Portfolios, Late 2007
• Competitive Landscape And Protagonists
• Methodology
• Basis Of Projections
• Commercial Bank Business Environment Rating
  • Table: Commercial Banking Business Environment Indicators And Rationale
  • Table: Weighting Of Indicators