Hong Kong Banking Report 2023

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Hong Kong Banking Report 2023
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Contents
Introduction 4
Financial performance 5
Overview of Results 6
Virtual Banks 14
China Real Estate 18
Hong Kong as an IFC 21

Back to Business 22
Tax Landscape 24
Chinese Banks in Hong Kong 27
China Economic Outlook 30
Growth opportunities 33
ESG 34
Climate Risk Management 37
Virtual Assets 40
Wealth Management 43
© 2023 KPMG, a Hong Kong (SAR) partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Business Transformation 47
Technology Risk and AI 48
Outsourcing 51
China Data 54
Risk and Regulatory Trends 57

Operational Resilience 58
Banking Turmoil 61
Sophisticated Investors 64
Data Analytics Platforms 67
Financial Highlights 69
About KPMG 98
Contact us 99
4 Hong Kong Banking Report 2023
Introduction
In our annual report we review the financial
performance of banks in Hong Kong in 2022 and look
at some of the key topics and growth areas for the
sector
Welcome to the latest edition of our annual Hong Kong Banking Report, where
we review the financial results of banks in the city in 2022 and share our
thoughts on the outlook for the sector. This report includes key statistics and
our analysis of the performance of banks in 2022, as well as expert insights into
some of the major trends and topics for banks in the year to come.
Paul McSheaffrey As we come out of Covid and the restrictions that were in place in Hong Kong,
Senior Banking Partner, Hong Kong all of us working in the banking sector in Hong Kong are looking to get back to
KPMG China business and seize the opportunities that exist.
Banking performance
The early months of 2022 were dominated by the fifth wave of Covid and the
Hong Kong (SAR) economy shrank by 3.5% in the year. However, the outlook
brightened considerably towards the end of the year as restrictions were eased.
Despite the slowing economy globally and in Hong Kong, banks in the city
performed well in many areas. This was principally due to the interest rate rises
during the year. As we predicted in last year’s Banking Report, rising interest
rates led to higher net interest margins for banks in the city. This fed through to a
significant rise in operating profit during the year.
However, banks in Hong Kong saw a rise in the impaired loan ratio in 2022, due
in part to their exposure to the China property market. In this report we take a
look at how the China real estate issues in loan portfolios developed and consider
what banks should learn from the experience. We also review the performance
of the eight virtual banks in Hong Kong in their second full year of operations, and
note how they are seeking to differentiate themselves in a competitive market.
Key trends and topics

As the Hong Kong banking sector gets back to normal business operations, we
look at the city’s role as an IFC and consider how to strengthen our advantages
as a financial hub. Key elements of our unique status include our crucial role as a
bridge to the Chinese Mainland and our corporate tax system, but we must not
be complacent, especially given that we have some ground to make up following
the long period of Covid restrictions
We also review some of the key growth areas for banks including ESG and
climate risk management, and the growing opportunities in wealth management
services. Business transformation continues to be a hot topic as banks look to
operate more efficiently while improving their service to clients. New technology
can help banks to transform but also comes with possible exposure to new risks.
New regulations and evolving risk also offer challenges and opportunities, and we
look at some of the latest development in areas including operational resilience
and data analytics that will affect banks in the year ahead.
We hope you enjoy the information and insights in this report. Please feel free
to get in touch if you would like to discuss the financial results or the broader
outlook for the Hong Kong banking industry.
Hong Kong Banking Report 2023 5
Financial
performance
Financial performance
Overview
Banks in Hong Kong see balance-sheet and profit

growth in 2022 despite global and domestic headwinds
and a rise in impaired loans
In 2022, global economic growth moderated amid the continuing impact of the
Covid-19 pandemic, coupled with elevated inflationary pressures and a higher
interest rate environment. Hong Kong’s economy also experienced a notable
Paul McSheaffrey slowdown with a contraction of 3.5 percent in 20221 compared to a 6.4 percent
Senior Banking Partner, Hong Kong expansion in 2021.
KPMG China Despite these headwinds, Hong Kong’s banking sector saw moderate growth in
its overall balance sheet in 2022. The total assets of all licensed banks expanded
by 2.5 percent to HK$23 trillion. There was a slight decrease of 0.6 percent in
loans and advances and a decrease of 0.2 percent in deposits. In line with our
prediction in our 2022 Hong Kong Banking Report, the effect of the rising interest
rate environment benefited the earnings of the city’s banks, with an increase in
net interest margins (NIM). The NIM for all licensed banks increased by 24 basis
points in 2022 to 1.55 percent. Operating profit before impairment charges for all
licensed banks increased by 24.3 percent to HK$220 billion in 2022.
Following seven interest rate rises in 2022, the US Federal Reserve again
Terence Fong raised the Federal Funds Rate by 25 basis points each in February, March and
Partner, Head of Chinese Banks May 2023. In tandem with the Federal Funds Rate increases, the Hong Kong
in Hong Kong Monetary Authority raised the base rate from 0.5 percent to 4.75 percent during
KPMG China 2022, and further increased to 5.5 percent during January to May 2023. We also
observed a sizable increase in the Hong Kong Interbank Offered Rate (HIBOR) in
2022 from 0.26 percent to 4.99 percent2 (for three-month HIBOR). The composite
interest rate, which is a measure of the average cost of funds of banks, increased
by 190 basis points from 0.21 percent in December 2021 to 2.11 percent in
December 2022.
Moving into 2023, uncertainties about the future interest rate pattern remain
high, but the reducing aggregate balance indicates that HIBOR and LIBOR should
converge as banks offer more attractive rates to attract Hong Kong dollar funding.
The Hong Kong (SAR) Government has forecast the city’s economy to grow by
3.5 to 5.5 percent in 2023, after a 3.5 percent contraction in 2022. The consumer
price inflation is forecast to be 2.5 percent in 2023, up from 1.7 percent in 20221.
1
2022 Economic Background and 2023 Prospects, Hong Kong SAR Government, February 2023, p.2, 8 and 9, https://www.
hkeconomy.gov.hk/en/pdf/22q4_ppt.pdf
2
The Hong Kong Association of Banks - HKD Interest Settlement Rates Highlights
Looking ahead, the performance of the Hong Kong banking sector in 2023 is
likely to be linked closely to the speed and extent of the economic recovery
in Hong Kong and also the growth of the Chinese Mainland economy, and in
particular the health of its real estate and technology, media and telecoms
sectors. While the high interest rate environment could bring an opportunity to
improve profitability, it is imperative for banks to closely monitor and manage the
credit risk of their loan portfolios.
Hong Kong’s eight virtual bank were all active in the market during 2022: please
refer to the section on virtual banks for more details.
In this report, we present an analysis3 of key metrics for the top 10 locally
incorporated licensed banks4 in Hong Kong. While some banks have a dual entity
structure in Hong Kong (eg a branch and an incorporated authorised institution),
we have not combined their results. The analysis is performed on a reporting
entity basis.
Net interest margin

Net interest margin
2.0%
1.79% 1.77%
1.67% 1.65%
1.5%
1.39%
1.24% 1.23%
1.14% 1.10% 1.05%
1.0%
0.5%
0%
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2022 2021
Source: Extracted from individual banks’ financial and public statements
The average NIM5 across all surveyed licensed banks increased by 24 basis
points compared with 2021, driven by the higher interest environment with a
relatively steeper yield curve and wider credit spread on financial assets. The
total net interest income of all surveyed licensed banks increased by 23.7 percent
from HK$224 billion in 2021 to HK$277 billion in 2022, contributed by a 47.3
3
The analysis is based on financial institutions registered with the Hong Kong Monetary Authority.
4
The top 10 locally incorporated licensed banks mentioned in this article are the 10 banks with highest total assets among all
locally incorporated licensed banks as at 31 December 2022.
5
NIM is either quoted from public announcements of financial statements, or calculated based on annualised net interest income
and interest-bearing assets or total assets, depending on the availability of information.
percent increase in interest income and partly offset by a 113.5 percent increase
in interest expenses. The average NIM for the top 10 licensed banks in 2022
increased to 1.36 percent from 1.14 percent in 2021. All the top 10 licensed
banks recorded an increase in NIM.
Among the top 10 licensed banks, DBS Bank (Hong Kong) Limited (DBS), Hang
Seng Bank, Limited (Hang Seng) and The Hongkong and Shanghai Banking
Corporation Limited (HSBC) recorded the top three largest NIM in 2022. DBS
also recorded the largest increase of 46 basis points from 1.33 percent in 2021
to 1.79 percent in 2022. For DBS, net interest income also increased due to
the expansion in both the loans and investment securities of the bank by 15.4
percent and 68.3 percent respectively during the year6.
Hang Seng’s NIM improved to 1.77 percent in 2022 from 1.49 percent in 2021.
The increase was largely driven by the 17 basis points increase in deposit
spreads and 11 basis points increase in net-free fund contribution, which resulted
from the bank’s proactive management of its assets and liabilities structure amid
global interest rate hikes7.
The NIM of HSBC increased by 30 basis points from 1.37 percent in 2021 to 1.67
percent in 2022. The increase was mainly attributed to wider customer deposit
spreads and higher reinvestment yields8.
In our view, the higher interest environment is, in general, positive for the banks.
While future US interest rate movements are subject to a host of uncertainties,
there is a view that there will be at most one or two more rate hikes in 2023.
Hong Kong banks, particularly major banks with larger current and savings
account (CASA) balances, have benefited from rising interest rates. However,
one notable feature of 2022 is that as interest rates increased, funds flowed out
of CASA accounts to seek yield. CASA accounts contributed 47.8 percent of total
deposits at the end of 2022 compared to 61.5 percent at the end of 2021. Going
forward, we can expect more competition on pricing for customer deposits.
6
DBS Annual Report 2022, p.6, 8
https://vpr.hkma.gov.hk/statics/assets/doc/100034/ar_22/ar_22_eng.pdf
7
Hang Seng Annual Report 2022, p.37 https://vpr.hkma.gov.hk/statics/assets/doc/100057/ar_22/ar_22_eng.pdf
8
HSBC Annual Report 2022, p.18 https://vpr.hkma.gov.hk/statics/assets/doc/100002/ar_22/ar_22_eng.pdf
Costs
Cost-to-income ratios
80%
70% 65.55%
60%
53.72%
51.38%
50%
43.50% 44.14%
39.03%
40% 26.77% 36.17%
28.86% 30.40%
30%
20%
10%
0%
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2022 2021
Under inflationary pressure, cost management remained an essential focus for

banks in Hong Kong to improve profitability. There was some positive news
in this area as the cost-to-income ratio for the surveyed banks on average
decreased by 4.8 percentage points for the year ended 2022 to 49.4 percent.
This was driven by a 12.6 percent increase in operating income, partly offset by a
2.9 percent increase in operating expenses to HK$215 billion for the year ended
2022. Compared to the increase in operating expenses of 8.8 percent from 2020
to 2021, we can see that banks have been focusing on the cost management.
While Hong Kong’s domestic economic activities gradually revived alongside the
generally stable local pandemic situation in the second part of 2022, the increase
in total staff costs of the surveyed banks moderated, with a slight increase of 1.1
percent in 2022 comparing to the 8.1 percent increase in 2021.
The top 10 surveyed banks showed a 13.2 percent increase in total operating
income, combined with a 2.4 percent increase in total operating expenses. The
weighted-average cost-to-income ratio of the top 10 banks improved from 49.5
percent in 2021 to 45.2 percent in 2022.
Bank of Communications (Hong Kong) Limited (BoCom (HK)) and Standard

Chartered Bank (Hong Kong) Limited (SCB) recorded the lowest and highest cost-
to-income ratios, respectively. ICBC (Asia) and Hang Seng were the only two of
the top 10 surveyed banks to record an increase in cost-to-income ratio. ICBC
(Asia) increased its cost-to-income ratio from 29.5 percent in 2021 to 30.4 percent
in 2022. This increase was mainly attributed to lower total operating income
resulting from a 16.0 percent decrease in net fee and commission income and
slightly higher operating expenses resulting from a 1.4 percent increase in staff
costs and 1.9 percent increase in other administrative expenses9.
Hang Seng increased its cost-to-income ratio from 42.6 percent in 2021 to 43.5
percent in 2022. The increase was mainly attributed to lower total operating
income resulting from a 22.9 percent decrease in net fee and commission
income and 109.9 percent decrease in net income from financial instruments
measured at fair value through profit or loss. The increase in ratio was also
contributed by the 4.6 percent increase in other operating expenses, mainly
related to IT and staff costs10.
SCB recorded the largest decrease in cost-to-income ratio among the top 10
banks – from 74.3 percent in 2021 to 65.6 percent in 2022, however, it remained
the only bank with a cost-to-income ratio exceeding 60 percent. The reduced
cost-to-income ratio was attributed to the 8.1 percent growth in operating
income, partly offset by a notable decrease of 4.7 percent in operating expenses,
which was driven by a sizable decrease in staff costs of 9.7 percent due to the
decrease in redundancy costs11.
Loans and advances

Loans
HK$ bn
4,000 3,745
3,500
3,000
2,500
2,000
1,656
1,500
1,201
945
1,000
550 460
500 294 280 242 211
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2022 2021
9
ICBC (Asia) Annual Report 2022, p.101 https://vpr.hkma.gov.hk/statics/assets/doc/100077/ar_22/ar_22.pdf
10
Hang Seng Annual Report 2022, p.178 https://vpr.hkma.gov.hk/statics/assets/doc/100057/ar_22/ar_22_eng.pdf
11
SCB Annual Report 2022, p.12 https://vpr.hkma.gov.hk/statics/assets/doc/100269/ar_22/ar_22_eng.pdf
Total loans and advances of all surveyed banks decreased modestly by 0.6
percent to HK$10,052 billion at year end 2022, after seeing growth of 6.6
percent in 2021, reflecting lower loan demand amid the uncertain environment.
Commercial loans, mortgage lending and loans for use outside Hong Kong
continued to make up most of the loans portfolio, representing 89.5 percent of
total loans, a slight increase from 88.7 percent in 2021. Loans for use outside
Hong Kong and commercial loans continue to be the two largest types of loans.
The balance remained relatively flat for all loan products.
HSBC and Bank of China (Hong Kong) Limited (BOC (HK)) continue to lead the
lending market, constituting 49.1 percent of total loans of all surveyed banks as
at 31 December 2022.
Among the top 10 surveyed banks, gross loans and advances decreased by 0.8
percent to HK$8,671 billion, after an increase of 5.7 percent in 2021. Seven out
of the top 10 surveyed banks recorded a reduction in their loan portfolio.
China Construction Bank (Asia) Corporation Limited (CCB (Asia)) experienced the
greatest relative contraction in loan balances, from HK$303 billion to HK$274
billion in 2022. The decrease was mainly driven by the contraction of property
development lending, transport and transport equipment lending, and trade
finance12.
After experiencing loan contraction in 2019, DBS has grown in the last three
years and showed the largest percentage growth in 2022. The gross loans of
DBS increased notably from HK$158 billion in 2019 to HK$280 billion in 2022,
representing a 77.2 percent increment from 2019. The increase was mainly due
to building and construction loan usage in both 2021 and 202213.
HSBC’s gross loans and advances, which cover its Asia Pacific operations,
decreased by 3.3 percent to HK$3,745 billion14. The overall loan balances for
HSBC’s Hong Kong operations remained stable with a decrease in trade finance
and industrial, commercial and financial lending, partly offset by an increase in
residential mortgages. BOC (HK)’s gross loans and advances increased by 3.2
percent to HK$1,656 billion, which was mainly driven by the growth in both
property development lending and residential mortgage loans15.
12
CCB (Asia) Annual Report 2022, p.90 https://vpr.hkma.gov.hk/statics/assets/doc/100015/ar_22/ar_22_eng.pdf
13
DBS Annual Report 2022, p.28 https://vpr.hkma.gov.hk/statics/assets/doc/100034/ar_22/ar_22_eng.pdf
14
HSBC Annual Report and Accounts 2022, p.106 https://vpr.hkma.gov.hk/statics/assets/doc/100002/ar_22/ar_22_eng.pdf
15
BOC Hong Kong (Holdings) Limited Annual Report 2022, p.280 https://vpr.hkma.gov.hk/statics/assets/doc/100072/ar_22/ar_22.pdf
Credit quality
Impaired loan ratio
3.0%
2.75%
2.53%
2.5% 2.39%
2.0%
1.68%
1.5%
1.19% 1.25%
1.04% 1.07%
1.0%
0.85%
0.53%
0.5%
0%
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2022 2021
Amid the challenging economic environment in 2022 coupled with the fifth wave
of Covid and the China property market downturn, the credit quality of the Hong
Kong banking sector deteriorated moderately. The impaired loan ratio16 for all
surveyed banks increased from 0.85 percent to 1.36 percent and the impaired
loan ratio for the top 10 banks also increased from 0.87 percent to 1.35 percent.
For the top 10 surveyed banks, BOC (HK) and BoCom (HK) recorded the lowest
and highest impaired loan ratio in 2022, respectively. BOC (HK) had the lowest
impaired loan ratio of 0.53 percent in 2022, up from 0.27 percent in 2021. The
impaired loan ratio of BoCom (HK) increased from 0.11 percent in 2021 to 2.75
percent in 2022, being the largest increase among the top 10 surveyed banks
during 2022. The increase was largely driven by the increase in impaired loans in
relation to the property development and investment sector17.
ICBC (Asia) and Nanyang Commercial Bank, Limited showed an improvement,

with their impaired loan ratio reducing by 48 and 31 basis points respectively.
These reductions were mainly attributed to several write-offs of impaired assets
during 2022.
16
Impaired loan ratio is calculated as impaired loans and advances divided by gross loans and advances to customers.
17
BoCom (HK) 2022 Regulatory Disclosure Statement, p.39 https://vpr.hkma.gov.hk/statics/assets/doc/100320/fd_int/
fd_int_1222_eng.pdf
In 2022, the Chinese authorities introduced comprehensive policy support, which

aimed to stabilise the China property market through mitigating the developers’
liquidity issues, securing the delivery of pre-sold housing projects, and providing
support on the demand side. For instance, the “Three-Arrows” policy and the
“16-Point Plan” were introduced in the fourth quarter of 2022. Looking ahead,
the recovery of the affected property developers will hinge largely on the China
property market and the demand for housing. Banks will be under pressure with
regards to the increasing impaired loan ratios, so we expect they will focus on
managing and downsizing the current exposures, and will also continue to closely
monitor the debt servicing ability of the borrowers.
On the retail side, many banks raised their Best Lending Rates three times and
by 62.5 basis points in total from September to December 202218, which imposed
an additional burden on the mortgage payments of borrowers. The aggregate
value of residential mortgage loans in negative equity increased to HK$66,252
million in December 202219 compared with HK$126 million in December 202120.
These cases were mainly related to bank staff housing loans or residential
mortgage loans under the Mortgage Insurance Programme, which generally have
a higher loan-to-value ratio. However, the overall mortgage delinquency ratio
increased from 0.04 percent in 202121 to 0.06 percent in 202222 and the risks
relating to banks’ residential mortgage loans remained slight.
Going forward, the stabilisation of the pandemic in Hong Kong and the
Chinese Mainland should benefit the local economy and improve corporates’
fundamentals. A key issue for banks to consider in 2023 is the extent and speed
to which demand for housing in China returns and how the financial position of
the real estate developers improves.
18
Half-yearly Monetary and Financial Stability Report, March 2023, p.5 https://www.hkma.gov.hk/media/eng/publication-and-
research/quarterly-bulletin/qb202303/E_Half-yearly_202303.pdf
19
Residential mortgage loans in negative equity: End of December 2022
https://www.hkma.gov.hk/eng/news-and-media/press-releases/2023/01/20230131-8/
20
Residential mortgage loans in negative equity: End of December 2021
21
Residential Mortgage Survey Results for December 2021
22
Residential Mortgage Survey Results for December 2022
Virtual Banks Forge Path to Sustainability

Since the initial excitement surrounding their launch has subsided, Hong Kong’s
eight virtual banks have faced increasing competition from traditional banks,
which continue to invest heavily in their digital banking capabilities as they strive
to stay ahead of the curve. Virtual banks faced other challenges in 2022 as they
navigated through economic uncertainties and the impact of Covid-19.
Benjamin Man
Partner, Financial Services, But despite these headwinds, in their second full year of operation most of the
Hong Kong new virtual banks saw an improvement in financial performance with a reduction
in losses before tax as they moved further along the path to sustainability. They
KPMG China
also made efforts to finesse their brand identity and to seek opportunities in new
areas, notably wealth management and insurance.
Virtual players will need to take note of fierce

competition from traditional banks
Traditional banks have responded to the arrival of virtual banks in Hong Kong by
amplifying their own digital transformation efforts to maintain their position as
the preferred choice of banking service provider. In particular, they are aiming
at capturing the younger, affluent and digitally savvy demographic, and some
Anthony Kot traditional banks have made significant progress in this area. For instance,
HSBC’s mobile banking application saw an increase of 90% in net growth of
Partner, Financial Services,
active millennial users compared to the previous year23.
Hong Kong
KPMG China There has also been a growing trend of traditional banks focusing more on their
digital footprint by merging, relocating and even closing some physical branches
as customers’ needs can increasingly be met via digital means24.
In 2022, even amid market challenges, virtual banks continued to see growth
in the number of accounts opened, reaching 1.7 million as of October 202225.
However, the growth rate was more muted than in 2021. The total number of
accounts grew 42% from the fourth quarter of 2021 to the third quarter of 2022
(latest available data), as compared to 186% from the fourth quarter of 2020 to
the fourth quarter of 2021.
Loss before tax (HKD’m)
(100)
(200)
(300)
(400)
(500)
(600)
(700)
(800)
Livi Bank Mox Bank Fusion Bank ZA Bank WeLab Bank Ant Bank Airstar Bank Ping An
OneConnect
Bank
2022 2021 2020
23
South China Morning Post, 16 January 2023, https://www.scmp.com/presented/business/banking-finance/topics/smart-banking-
millennials/article/3206222/traditional-bank-stands-gain-it-embraces-digital-needs-young-millennials-disrupting-industry
24
Hong Kong Monetary Authority 19 April 2022, https://www.hkma.gov.hk/eng/news-and-media/insight/2022/04/20220419/
25
Keynote Address, Hong Kong FinTech Week 2022, https://www.hkma.gov.hk/eng/news-and-media/
speeches/2022/10/20221031-1/
In terms of financial performance in 2022, all virtual banks continued to report a

loss before tax, albeit with slight improvements from the previous year’s results
for six out of eight virtual banks.
Ping An OneConnect Bank and Airstar Bank had the best performance results
relative to the other virtual banks, as indicated by the largest percentage decrease
in loss before tax compared to 2021 (27% and 18% respectively), while also
reporting the smallest loss before tax in absolute terms. This better performance
was notably driven by their higher net interest margins.
The total combined gross loans offered by the virtual banks increased significantly
from HK$6 billion in December 2021 to HK$16 billion in December 2022, as all
virtual banks deployed more deposits into lending, evidenced by a higher overall
loan-to-deposit ratio of 54% compared to 25% in the previous year.
Loans and Deposits (HKD’m)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
ZA Bank Mox Bank Fusion Bank Livi Bank WeLab Bank Airstar Bank Ping An Ant Bank
OneConnect
Bank
2022 Deposits 2021 Deposits

2022 Loans 2021 Loans
Note: The percentages show the loan-to-deposit ratios
Nonetheless, higher loan sizes did not always correlate strongly to higher
profitability during 2022. For instance, Ping An OneConnect Bank increased its
loan-to-deposit ratio by 1 percentage point to 84% and saw a decrease in loss
before tax of 27%, making it the best performer among the virtual banks. In stark
contrast, Fusion Bank increased its loan-to-deposit ratio by 23 percentage points
to 28%, but had an increase in loss before tax of 22%.
To improve profitability and become sustainable, virtual banks will need to factor
in other parameters aligned with their individual cost optimisation strategies.
Except for ZA Bank and Mox Bank, which continued to grow their deposits
substantially and deploy those into lending, the other six virtual banks
experienced much slower, or even negative, growth in deposits in 2022. In some
cases, however, this has been a strategic decision. Virtual banks are aware that
unrestrained growth in deposits may adversely increase their cost of funds, so
some have decided to limit deposits taken and to strike a balance adapted to
their individual risk appetite.
All in all, as the Hong Kong banking landscape becomes ever more competitive,
it is imperative for virtual banks to keep innovating and implement strategies
to attract and retain customers if they are to become profitable. While in the
short run some virtual banks may be able to benefit from parental support, they
ultimately need a credible path to profitability. As such, we maintain our view that
some virtual banks could quietly cease operations or consolidate their operations
over the next few years.
Differentiation remains key to future development

Early success in market positioning
In 2022, most virtual banks made efforts to solidify their brand identity and
market positioning.
ZA Bank, WeLab Bank, Mox Bank and Ant Bank primarily cater to the mass
retail market through a range of new products and services such as credit
card statement instalment programmes. Meanwhile, Airstar Bank and Ping An
OneConnect Bank aim to capture a slice of the market for lending to small and
medium-sized enterprises (SMEs), particularly those that may find it difficult to
meet traditional lending requirements.
For instance, Ping An OneConnect Bank partnered with an e-commerce company

to launch Trade-Connect Loan, which extends pre-approved loans of as much as
HK$5 million, predominantly to export-import-oriented SMEs. Such loans can help
to ease the financing needs of underserved or unserved smaller businesses in
Hong Kong26.
Moreover, ZA Bank, with the ambition of becoming the go-to bank for Web
3.0 crypto start-ups, has recently been pushing into transfers of crypto and fiat
currencies by looking to offer token-to-fiat currency conversions with licensed
exchanges27. ZA Bank has also been forging a path in international transfers. In
partnership with a global technology company, it has become the first virtual bank
in Hong Kong to offer international transfers with no foreign exchange mark-ups
or hidden fees. This service was launched in November 202228.
26
S&P Global Market Intelligence, 27 June 2022, https://www.paob.com.hk/en/sme-lending.html
27
ZA Bank, News Centre, https://bank.za.group/en/content/18ada6a7-38d2-4813-bc69-79b88bb98145
28
ZA Bank, News Centre, https://bank.za.group/en/content/52983457-16bd-4fde-9f08-9c5df2266430
Venturing into wealth management and insurance

Virtual banks hope to venture into wealth management and insurance and
capitalise on the rising trend of online distribution of such products and services.
Younger customers in particular value the convenience of being able to conduct
research and purchase investment and insurance products and services with
a just few clicks. This is evidenced by the strong growth in the number of
investment transactions and long-term insurance policies sold via digital channels
in the past few years29.
Fusion Bank, WeLab Bank and ZA Bank obtained the necessary licenses from the
Securities and Futures Commission in 2022 to start offering wealth management
products and services to customers, while Livi Bank followed suit in early 2023.
ZA Bank and Livi Bank were both granted the Insurance Agency License from
the Insurance Authority to enable them to add fee-based insurance products and
services to their range of offerings. More specifically, ZA Bank has collaborated
with a fellow group company to offer health and life insurance products to
customers30, while Livi Bank has leveraged its existing partnerships and network
of shareholders to launch home and travel insurance products31.
While more investment and insurance licenses may be granted to virtual banks
in 2023, they will also need to be wary of offering too many diverse products or
services, which could risk confusing or diluting their brand identity.
The path to sustainability

In 2022, the eight virtual banks in Hong Kong continued to operate at a loss amid
market uncertainties and strong competition from traditional banks. However,
most virtual banks were able to improve their financial performance relative to
the previous year.
To succeed in Hong Kong and turn their losses around, virtual banks will need to
continue to be innovative and responsive to industry changes.
The key to achieving this is through asserting their brand identity and positioning,
whether that would be in the mass retail market, SMEs lending segment or via
new products. It remains crucial for virtual banks to define and communicate their
value proposition to customers clearly in order to pave a path to sustainability.
29
Hong Kong Monetary Authority 19 April 2022, https://www.hkma.gov.hk/eng/news-and-media/insight/2022/04/20220419/
30
ZA Bank, https://insure.za.group/v2/en
31
Livi Bank, Press Release, https://www.livibank.com/pdf/livi%20bank%20launches%20app-based%20Travel%20Now%20
Insurance%20Plan%20that%20provides%20peace-of-mind%20for%20its%20Customers%20as%20they%20look%20to%20
travel%20again.pdf
Financial performance
Chinese Real Estate
Exposure to struggling property developers has helped

to drive up expected credit losses at Hong Kong
banks and highlighted the importance of good lending
practice
Hong Kong banks generally performed well in 2022, with growth in total assets,
net interest income and net profit after tax, compared to 2021. However, banks
Guy Isherwood also saw a rise in expected credit losses (ECL) during the same period.
Senior Advisor
KPMG China This uptick in ECL is primarily driven by the additional provisions against
exposures to real estate developers in the Chinese Mainland. Many Chinese
property developers have faced well-publicised financial struggles in the past
few years, and more than 70 – mostly privately owned enterprises (POEs) –
have defaulted. These developers are now engaged in various degrees of debt
restructuring discussions with their creditors, which will take time to be worked
out.
Background
China’s real estate activities have grown rapidly since the late 1990s, and for
the past ten years has made up approaching 30% of the nation’s GDP. This is
due to the confluence of several aspects, including the government’s aim to
provide housing and employment for its increasingly urbanised citizens, local
governments’ active sale of land as a primary source of income, developers’ easy
access to credit funding, and high investor demand to own Mainland property, all
of which encouraged a very active real estate market.
Debt, including borrowing from banks, was used to fund much of this growth.
Debt was directly borrowed by the developers onshore and off, but also end-
buyers paid sizeable purchase deposits, also funded with mortgage loans from
banks.
What went wrong was that the developers grew very big, very quickly and
started to lose control of the finances. Money borrowed or received through
purchase deposits for a particular project became fungible with other projects.
The problems were further fuelled as a) people bought additional properties often
as speculative investments, also funded by debt, and b) developers increasingly
undertook higher risk projects in second and third tier cities where fundamental
end-use demand did not exist.
So, what had been a sensible way to support economic growth got derailed –
as has happened in so many other countries – because of bad management,
speculation and excessive debt leverage.
Remedial action
The government recognised this problem around three years ago and introduced
its “three red lines” – restrictions on leverage ratio, gearing ratio and cash ratio –
to try to constrain the amount of debt that POEs were able to access. As a result,
many POEs were unable to borrow more, and those that didn’t have the cash to
complete properties started to default.
Over the past year or so, defaulting developers have been engaging with
their creditors, and in the last few months we’ve started to see restructuring
terms being agreed. In theory, the offshore creditors should be included in the
restructuring plans. However, the complexity of the groups, the structure of
offshore borrowings, and the way the restructurings are being organised means
that it is unlikely that offshore creditors will be repaid in full.
Hong Kong banks got into this situation by lending to the offshore holding
companies (holdcos) of the real estate developers, which were based in Hong
Kong, but often incorporated in offshore centres like Cayman, Bermuda, etc.
However, the vast majority of operating businesses and development projects
– sometimes hundreds of them – sat in the Chinese Mainland. Many developer
groups are large and complex, with projects held by numerous individual
subsidiaries, joint ventures or associates. The offshore holdcos are far distant
from the cash-generating assets, with substantial debt owed by the individual
project entities and by multiple priority debt hurdles owed by intermediate holding
companies.
The Central Government’s priority is understandably to complete the projects

and deliver the property units to the end-buyers (mortgagors), and will help
facilitate suitable additional finance to enable this to happen. Any surplus cash
from each completed project will be first used to meet new and then existing
debt obligations at the project level, and then will flow upstream to meet claims
at each intermediate level and only then, if there are surplus funds available after
addressing all the onshore stakeholders, will cash reach the offshore holdcos’
creditors.
Although there is a strong drive from national and local government to get these
projects completed, the authorities are not going to bailout the developers, nor
the creditors. They will allow the process to be worked through, and it will take
several years for these projects to be completed.
A few restructuring plans have been announced recently, including for the
largest, Evergrande. Some industry analysts have commented that the plans are
not really restructurings, they are more long-term deferments of the debt. In the
case of Evergrande, creditors are offered one alternative of bullet payments out
10 to 12 years, with interest only capitalised.
The reality is that these long-term “rescheduling” plans will provide breathing
space to enable projects to be finished, but are unlikely to be enough to create
value and sufficient cash necessary to repay all the associated debt.
Complex loans and lessons learned

Banks in Hong Kong have exposure to real estate developers with the debts
owed by their offshore holdcos. Often this unsecured debt has no direct claim on
Mainland property projects. Material levels of ECL has been taken by banks, but
the eventual outcome of “restructurings” and ultimate extent of debt repayment
remains uncertain.
The key lesson for banks from China’s real estate crisis is a reminder of the basic
rules of lending: lend (have direct legal recourse) to the entity that legally owns
the asset, where the cash will be generated to repay the loan. Over the past
few years creditors have let this principle slip, and have accepted the “structural
subordination” that goes with these offshore-onshore loans, putting themselves
in a very difficult position once a company defaults. A decade and half of ultra-low
interest rates, and an insatiable demand by clients to borrow explains this lapse.
Weaknesses of structural subordination were exacerbated by creditors relying on
“refinancing” as their primary source of repayment, a speculative assumption and
one that should rarely be the basis of a credit approval.
The banking sector has seen similar issues before, such as the Mainland
government “window companies” in Hong Kong in the late 1990s and Asian
commodity companies in more recent years. The failure to avoid the same
mistake this time, and more importantly the need to avoid it in the future, is
something bank governance committees should reflect on.
Despite the material sums involved, and the long wait expected before certainty
of loan recoveries will be clear, the China real estate crisis has not been hugely
detrimental the Hong Kong banks involved. Hong Kong banks’ profits may be
dampened by any further need to raise ECL, but banks in Hong Kong are well
capitalized so should comfortably absorb any residual negative impacts.
While the overall impact on Hong Kong banks may not be severe, the China real
estate challenge provides useful reminders to risk governance committees that
can be distilled into three areas:
1. Constantly ask, where is the next bubble? Actively identify material exposures
to potential asset/market bubbles with high concentration and correlation risks
and ensure the related risk appetite is reviewed, approved and effectively
monitored.
2. Where an asset bubble is identified, ensure that counterparty underwriting

standards and facility structuring requirements reflect the higher risk and keep
the portfolio within risk appetite. In this connection, ensure:
a. any cross-border exchange controls are complied with, and
b. repayment does not solely rely on refinancing.
3. Confirm credit policies restrict any structural subordination of the bank’s

facility claims, with any exceptions requiring elevated risk governance approval
These long-term ‘rescheduling’ plans will provide

breathing space to enable projects to be finished,
but are unlikely to be enough to create value
and sufficient cash necessary to repay all the
associated debt.
Hong Kong
as an IFC
Hong Kong as an IFC
Back to Business
Now that the city has fully reopened, Hong Kong

should seize the opportunity to strengthen its status as
a global hub for finance
Hong Kong is well and truly back to business now that our borders have
reopened and normal operations have resumed. However, the city still has
some catching up to do in certain aspects after the extended period of Covid
Jia Ning Song restrictions put us on the back foot compared to other jurisdictions.
Head of Banking and Capital Markets, In particular, we must ensure that the rest of the world knows that Hong Kong is
Hong Kong back in business, and that our unique set of attractions as an IFC remains intact.
KPMG China There is no doubt that the Hong Kong brand has been tarnished over the past
few years. But this doesn’t mean that our reputation as a global financial hub
has been irreparably damaged: with some hard work and polish, the city’s sheen
should soon return.
The government is aware of the challenges and has made the financial sector
a key focus of its recovery efforts. One of its first “back in business” activities
was the high-level banking summit hosted by Financial Secretary Paul Chan in
November last year. The government has also rolled out a range of promotions
to attract tourists, business travellers and investors back to the city, which will be
essential for a full economic recovery.
Paul McSheaffrey
Senior Banking Partner, Hong Kong Key advantages
KPMG China Hong Kong’s key advantages as an IFC remain solid. Our location at the heart
of Asia and excellent connectivity are as important as ever, while our low and
simple tax rate remains globally competitive. The city has a superb professional
services ecosystem with world-class talent including lawyers, advisors and
accountants. All of these are underpinned by the strong foundation of the rule
of law, with the benefits of a common law system, independent judiciary, clean
transparency index and trust in the core system.
In addition, our connections with the Chinese Mainland cannot be replicated by

any other city. As the global trade and business landscape evolves, Hong Kong
will continue to provide a crucial service as a bridge between the Mainland
and the rest of the world. This will involve helping Chinese companies seeking
growth in new markets including Southeast Asia, the Middle East and Central
Asia, as well as international corporates keen to explore the emerging onshore
opportunities.
Hong Kong also benefits from cross-border ties in terms of product innovation.
The Greater Bay Area is at the forefront of innovation in financial products and
fintech, and China has some of the most innovative payment methods in the
world. To date, these have mostly been applied in a closed payment loop, but
Hong Kong could be the channel to test a more regional reach. China is also
moving forward in Central Bank Digital Currencies, with development of the
E-CNY.
Looking ahead, Hong Kong should also look to develop its own product
innovations related to areas where the city is already strong. In ESG, for example,
Hong Kong is doing well in green finance. But we should also see where we can
contribute to the real economy – in energy, recycling, real estate and transport
– and ensure that the financial services sector is helping these industries to
become sustainability leaders.
In terms of emerging sectors, the Hong Kong government is making significant

efforts to promote the city as a virtual assets hub, including through stronger
regulations such as the new Virtual Assets Trading Platform licencing regime.
This approach has already attracted the attention of the industry globally, and a
strong virtual assets capability will provide another string to the city’s bow as a
broad-based financial hub.
Lifestyle and talent

Being a successful IFC is not just about the financial side, such as access to
global corporates, innovative entrepreneurs and business leaders. It is also about
being a world-class city in terms of lifestyle. Hong Kong offers a diverse and
exciting range of leisure options for residents, from fine dining and street food to
beaches and mountains. The city’s extensive transport infrastructure means that
all of these are easily accessible within a short journey.
The government has also been developing the city’s cultural attractions, including
the opening of the M+ gallery and Palace Museum as part of the West Kowloon
Cultural District. These enhancements can have an impact beyond the tourism
and culture sectors.
To be a successful financial centre, a city needs to be able to attract a wide

range of global professionals, from the brightest new graduates to seasoned
executives. Hong Kong must be able to compete with other locations in terms of
culture, as well as schools, sports and community, to attract the best.
Hong Kong can offer all of these as part of our many attractions a global city.
Right now, Hong Kong is enjoying an economic rebound driven by the border
reopening and the end of Covid restrictions. This is perhaps a prime opportunity
to spread the word and ensure that we can continue to attract the world-class
talent needed to further strengthen our foundations as an IFC.
Hong Kong as an IFC
Tax Landscape
In an increasingly complex global environment, Hong

Kong’s tax regime remains a key part of the city’s
advantages as an IFC
Hong Kong’s low tax rate and simple tax regime has long been a cornerstone
of the city’s success as an IFC. This situation is likely to continue: in this year’s
Budget speech, Financial Secretary Paul Chan reiterated the government’s
Matthew Fenwick commitment to supporting the financial services sector, including by ensuring
Partner, Tax, Hong Kong that a competitive tax regime is in place.
KPMG China However, there has been significant external pressure on the Hong Kong tax
system. The local application of the OECD’s BEPS 2.0 initiative, specifically Pillar
2, will see a 15% minimum corporate tax rate in Hong Kong in the next couple
of years for the largest taxpayer groups. Under Hong Kong’s current regime, in
accordance with the territorial system and with exemptions from tax for capital
gains and incentives or concessionary treatments for certain other income, many
of the biggest banks have a tax rate of below 15%; when Pillar 2 comes in, they
will likely need to pay a top-up.
But even after BEPS is introduced, Hong Kong will continue to offer tax
advantages compared to many other jurisdictions, and banking groups along with
Irene Lee other large corporates will continue to want to do business here.
Partner, Tax, Hong Kong
KPMG China Talent and capital
Talent and capital are key attributes of Hong Kong’s place as an IFC, with tax an
important enabler of both.
As a world-class city in terms of lifestyle as well as a global financial centre,

Hong Kong attracts top-level banking specialists. These range from traders
and relationship managers to specialised middle-office experts, while back-
office functions are often managed from Hong Kong even if teams sit in other
jurisdictions. Hong Kong’s relatively low personal tax rates and exclusions
for investment income remain attractive factors for individuals in the financial
services sector.
The question then arises, how much of the income generated by traders
and relationship managers in Hong Kong should be retained here and how
much shared with the rest of the organisation? A similar question applies for
operations: how are the costs of operations teams based in Hong Kong but
serving regional branches being shared across the group?
The quantum, nature and form of remuneration paid to these individuals then
comes in to play, with the very same attributes that are important to corporates
also important for their employees.
Another key attribute of Hong Kong as a financial hub is the large capital market.
When major banks raise capital, much of it is done centrally then downstreamed
to the banks’ operating subsidiaries. Banks need to identify the right time and
place to raise funding, then figure out how to push the funding out to the group
in the most tax effective and efficient manner. This includes ascertaining how
much the subsidiary should be paying by way of funding costs for that capital
that has been downstreamed.
Hong Kong’s specific tax rules for regulatory capital securities provide a
robust framework for the tax implications for funding raised in Hong Kong or
downstreamed to and through Hong Kong.
Transfer pricing regime

Another tax-related way that the government supports Hong Kong as an IFC is
through its guidelines relating to transfer pricing. While having profits flow to
Hong Kong is a good thing for banks based here -- and for the city more generally
-- the government wants to make sure that we have robust guidelines to ensure
that costs and income are in the right place and to strengthen the city’s position
as a world-class financial centre.
Transfer pricing deals with how the income and costs in multinational businesses
are divided up across the group appropriately. It is particularly important because
Hong Kong is both a centre of excellence for senior bankers and a global or
regional headquarters for a lot of banks and other multinational corporates, which
generally provide support to affiliates in other jurisdictions. For example, traders
in Hong Kong will support the generation of significant income and gains off a
global platform. Equally, a bank’s head or regional office in Hong Kong will incur
costs, much of which will be used to support the regional business.
In Hong Kong, transfer pricing guidelines were put in place in 2018. These not
only give clear guidance to banks operating in Hong Kong, but also ensure that
they have the supporting evidence and documentation to demonstrate to tax
authorities in Hong Kong and in other jurisdictions that income and costs are
being recorded properly and in the right place.
Banks should make it a priority to ensure that they are following the transfer
pricing guidelines and that they are being proactive in terms of preparing the
required documentations and collating evidence for record purposes.
The guidelines in Hong Kong do create a compliance burden for banks, as well
as additional costs such as fees for service providers. This cost and compliance
must also be borne in advance of any queries from the tax authorities.
But once they receive audit requests, banks will appreciate the benefits of the
head office in Hong Kong having robust processes. Some other jurisdictions
have very rigorous audit procedures, so it is especially useful to have the transfer
pricing documentation prepared ahead of any questions from the tax authorities.
The guidelines also demonstrate that Hong Kong has a transparent tax
environment and a framework in place to ensure that procedures are being
followed, which is important to our global standing as an IFC.
Shifting tax landscape

As a result of global and local regulatory changes, Hong Kong’s tax rate is not
quite so low and the regime is not quite as simple as it was in the past. OECD
pressure means that refinements have been made to what had previously
been a very straightforward Inland Revenue Ordinance, beside the increases to
corporate tax rates that will come about under BEPS. The focus of the EU has
also impacted the domestic tax landscape, albeit with corporate (as opposed to
financial services) taxpayers more in their focus.
Another thing that has complicated matters is that Hong Kong has introduced
certain incentives to encourage the development of the financial sector, in areas
including corporate treasury centres, reinsurance, family offices, funds and other
consolidations of wealth. Industry participants that want to take advantage of
these incentives will need to ensure they are ready to tackle a certain amount of
additional complexity and compliance requirements.
But while Hong Kong’s tax system has become more complex in recent years, it
is still very straightforward by global standards as well as having a relatively low
tax rate as compared to most other jurisdictions.
So despite the recent changes, as an IFC, our tax environment remains very
attractive to global and regional corporates and financial institutions.
In terms of Hong Kong as an IFC, it is worth noting that there is also a tax lever
in attracting people to come to the city to work. Compared to other world-class
financial cities, Hong Kong’s income tax is relatively low, which will continue
to be an attractive proposition for talent. Furthermore, Greater Bay Area cities
have been introducing incentives to bring income tax in line with Hong Kong and
to make it more attractive for Hong Kong-based talent to also work across the
border.
While Hong Kong’s tax system has become

more complex in recent years, it is still very
straightforward by global standards as well as
having a relatively low tax rate as compared to
most other jurisdictions.
Hong Kong as an IFC
Chinese Banks in Hong Kong
Border reopening has revived cross-border financial

activity, while Hong Kong branches are also serving
as a connector for Chinese banks’ overseas expansion
plans
The reopening of the border between Hong Kong and the Chinese Mainland has
been a major boost for Chinese banks based in the city, allowing the resumption
Terence Fong of business travel and other essential cross-border activity – particularly with the
Head of Chinese Banks, Hong Kong Greater Bay Area (GBA).
KPMG China
It is expected that the GBA initiative – which aims to enhance connectivity
between Hong Kong and Guangdong Province and Macau – will pick up pace
again. Indeed, there has already been action on this front since the travel
restrictions eased, with the introduction of a new scheme to allow more Hong
Kong people to drive across the border into Guangdong.
Besides the resumption of physical links, there have been developments in

online connectivity. Chinese banks have been working on digital wallets that
can be used in all 11 GBA cities including Macau, which will support customers
involved in cross-border business. There have also been inroads in other cross-
border services, including mortgages for Hong Kong residents to buy property in
John YQ Jiang Mainland cities.
Associate Director, Financial Services,
Strategy & Operations, Hong Kong In another recent development, Hong Kong residents can now open a Mainland
KPMG China bank account without needing to travel across the border or have a Mainland
address. Under this pilot scheme, which is being run by Bank of China Hong
Kong, customers will be able to link their account with mobile payment platforms
in the GBA, making travel in the region more convenient.
The various “Connect” schemes that facilitate cross-border investment continue

to be enhanced, while the physical reopening of the border is expected to drive
a resurgence in demand this year. The new Swap Connect was launched in May,
which enables investors to conduct RMB interest rate swap trading and clearing
in the Chinese Mainland and Hong Kong. Also, enhancements to the Wealth
Management Connect scheme have made it easier for investors in the Chinese
Mainland to invest in southbound products.
The financial sector has been asking for enhancements to people flow and capital
flow between Hong Kong and the Mainland, so it is a positive development to
see that the programme of opening up has resumed now that Covid restrictions
have eased.
The financial sector Enhancing the links across the GBA is a key policy of both the Central and Hong
has been asking for Kong governments, and Chinese banks have an important role to play across
many aspects, including supporting Hong Kong as a financial hub for the nation,
enhancements to people encouraging the development of the city’s technology and innovative industries,
and promoting the construction of major infrastructure projects such as the
flow and capital flow Northern Metropolis.
between Hong Kong and
Looking more globally, Chinese banks in Hong Kong are also increasingly looking
the Mainland, so it is a at overseas opportunities, especially in Southeast Asia. The banks are taking
different approaches to this expansion exercise, with some converting into
positive development to regional headquarters while others are collaborating with local branches. Some
see that the programme Chinese banks are also actively looking at other locations further afield, including
countries in the Middle East and Central Asia that are part of the Belt and Road
of opening up has Initiative.
resumed now that Covid Hong Kong also serves as a training hub for talent for the Chinese banks’
restrictions have eased. overseas operations as part of these plans to expand internationally.
Technology development
Although the Chinese Mainland is well-known for its advanced technology,
especially in customer service and online access, Chinese banks in Hong Kong
have often been seen as old-fashioned and offering relatively limited services.
This is partly because their client base has largely been focused on Chinese
corporates operating in Hong Kong.
However, Chinese banks are also interested in developing the retail market
locally, so a number of them have been making efforts in brand building to
develop a more modern look – including upgrading their physical branches as well
as refreshing their websites – in a bid to improve their customer experience.
Attracting more local customers, especially young professionals, does present

challenges for Chinese banks. Even though the parent banks are generally very
advanced in mobile banking services, they cannot just copy these services as the
Hong Kong market has a different customer base with different expectations.
However, it is expected that Chinese banks in Hong Kong will continue to put
more efforts into marketing and branding to boost their presence in the market.
In terms of using technology to offer better service to business customers,

Chinese banks are active participants in the HKMA’s Commercial Data
Interchange platform, which was launched in 2022. This platform uses alternative
forms of data to improve the speed and accuracy of decision making. It helps
businesses to access credit, particularly SMEs that often struggle to access
loans. The use of alternative data to support credit assessment and risk control is
already very mature in the Chinese Mainland market, so Chinese banks in Hong
Kong have been able to leverage the experience of their parent bank in this area.
Green opportunities
The Hong Kong government has been working hard to make the city a regional
hub for sustainable finance, and the Central government has also ramped up its
promotion of green finance in the last year or so. Both governments are keen to
encourage investment in green technology and green energy, which will need
funding support that banks can provide.
Chinese banks in Hong Kong are now working to build up their green finance
framework and products including green deposits and loans. Internally, they have
also been enhancing their sustainable efforts, such as setting up sub-committees
under the board level to develop ESG frameworks in line with global practice.
In the Mainland, some Chinese banks have been at the forefront of innovation
in green and sustainable financial products, and have already started to launch
various innovative products in this area, such as personal carbon accounts.
Backed by their domestic parent banks, the Hong Kong subsidiaries can leverage
the experience and framework from the parent banks and can build competitive
advantages in the following ways:
• using transition finance to help high-carbon industries transition to low carbon

business in the GBA
• providing green investment and financing services for Chinese companies

along the Belt and Road
• launching innovative carbon financial products and services in light of the

progress of Hong Kong’s carbon trading market
• developing tokenized green bonds
However, there may be some challenges for Chinese banks in terms of adopting
their products and services so they are suitable for the Hong Kong market.
One issue for banks and other businesses is uncertainty about what can be
labelled as “green” or “sustainable”. Hong Kong is currently working on a green
taxonomy that will create a clear set of expectations. Chinese banks in Hong
Kong are quite cautious in terms of regulatory requirements, but once the green
taxonomy has been released this will likely give them more confidence to speed
up their development of sustainable products and services.
Talent is an issue that is affecting Chinese banks in Hong Kong, including in the
areas of ESG and IT, although the whole financial sector is facing manpower
challenges in these areas. In sustainability, there is a general shortage of talent in
the market with the relevant expertise.
For IT, although Chinese banks have struggled to find talent in Hong Kong,
they have been able to draw on the high levels of tech talent in the Mainland,
especially in Shenzhen. A number of Chinese banks have built up their
technology capabilities in Shenzhen recently, due to the widespread availability of
skilled staff.
Hong Kong as an IFC
China Economic Outlook
Hong Kong set to benefit from the Chinese Mainland’s

economic recovery as well as tourism recovery in the
city
The end of Covid restrictions is helping to drive an economic recovery in the
Chinese Mainland as life gets back to normal for consumers and businesses
alike. KPMG China’s economists have forecast 5.7% GDP growth for 2023. This
Kevin Kang is a bit higher than the official government forecast of “around 5%”, but has
Chief Economist been supported by the higher-than-expected results for Q1 released in April.
However, the Chinese economy is likely to face challenges in the year ahead,
KPMG China
which could constrain the pace of its economic recovery.
The recent GDP growth is largely as a result of a strong rebound in domestic

consumption, as consumer confidence has returned after three years of
pandemic-related restrictions. Exports have also been a key driver of growth
recently, including a 14.8% rise in March, which contributed to the strong Q1
figures.
One explanation for the resilience in exports has been a shift in China’s export
structure. This has meant more exports to markets including ASEAN and the
Middle East where economic performance has been more positive, and less
reliance on economies like the US and EU. However, it is likely that exports will
slow down in the second half of 2023 as the cooler global economic environment
will have an impact.
Another headwind could be the Chinese real estate market, which has improved
from the low base of 2022 but the momentum has weakened a bit in recent
months. If it remains weak, this could become an issue, as the real estate market
contributes significantly to China’s overall GDP growth. In addition, external
challenges could weigh on the global economy this year, including geopolitical
tensions such as the ongoing conflict in Ukraine.
Hong Kong’s recovery

Hong Kong has also rebounded after the border reopening, and KPMG has
forecast economic growth for the city of 2.7% in 2023. Like the Chinese
Mainland, the city has benefited from the end of Covid restrictions, which is
evidenced by the tourism sector. Although the numbers have not yet returned to
pre-pandemic levels, arrivals have recovered sharply and the upward trend seems
set to continue.
Monthly tourist arrivals to Hong Kong,

3-month moving average, thousand people
8,000
6,000
4,000
2,000
-
2015 2016 2017 2018 2019 2020 2021 2022 2023
Tourist arrivals in Hong Kong

Tourist arrivals from the Chinese mainland
Source: Wind, KPMG analysis
Hong Kong’s economic prospects are also tied to its role as a key financial centre
for the Mainland. As Hong Kong is an important investment and trade conduit for
business going in and out of China, it will benefit from the economic recovery in
the Mainland in the year ahead.
The Central Government has made clear that it will continue to support Hong
Kong’s role as an international financial centre as well as a financial hub for
the nation. This commitment was reiterated in the report of the 20th National
Congress of the Communist Party of China in October last year.
In practical terms, evidence of this support for Hong Kong’s financial sector
can be seen in the continuing enhancements to the cross-border investment
schemes. In May this year, the interest rate Swap Connect scheme was
launched, adding to the Stock, Bond and Wealth Management Connect schemes
that have been launched since 2014 to deepen the connections between the
Mainland and Hong Kong financial markets.
RMB internationalisation
An important part of Hong Kong’s role as the financial hub for the nation is
in RMB internationalisation. Hong Kong is the world’s largest offshore RMB
business hub, accounting for 73% of RMB international payment transactions.
As the RMB is expected to play a bigger role in China’s trade and finance in the
future, this will provide further opportunities for the development and growth of
Hong Kong’s financial sector.
There has been significant growth in the use of the RMB in recent years,
especially in global trade. According to the Standard Chartered Renminbi
Globalisation Index, international use of the RMB grew by 26% during 202232.
This trend seems likely to continue. For example, in February, central banks in
China and Brazil signed a memorandum to establish RMB clearing mechanism
in Brazil, which should boost the usage of RMB in cross-border transactions
between the two countries. As China is the largest exporter globally, it is aiming
to leverage this leading position to encourage more trade settlement in RMB
terms.
On the financial investment side of RMB internationalisation, however, growth

has been fairly static recently after an initial strong period of growth around 10
years ago. From a Hong Kong perspective, the banking sector would like to see
greater use of the RMB in fundraising, lending and investment. Hong Kong has
the infrastructure and professional expertise in place, as it already provides these
services for the Hong Kong dollar and a range of global currencies.
However, it is worth noting that currently the top priority of the Central
Government is to balance economic growth with enhancing national security. The
banking sector in Hong Kong would welcome more clarity and a roadmap on the
development of RMB internationalisation in financial services, which would also
give global investors more confidence about investing in Hong Kong.
Cautious optimism for 2023

Looking forward, there are plenty of reasons to be confident about the continued
improvement in the Chinese Mainland and Hong Kong economies. It is probably
too early to be overly optimistic given that both economies are still recovering
from the pandemic and will face external economic challenges in the year ahead.
But Hong Kong’s returning tourists and other rebounding sectors will boost
the local economy and drive confidence, while the city’s unique role in China’s
financial system will support the city’s recovery throughout 2023 and beyond.
32
https://research.sc.com/rgi-dashboard/
Growth
opportunities
Growth opportunities
ESG
Banks can act as agents for change with three

priorities for strategic competitiveness, sustainability
and future profit growth
As an international finance centre, Hong Kong has committed to advancing
its position as a leader in ESG and green and sustainable finance. Regulatory
efforts to support the banking sector have focused on laying a solid foundation
Rani Kamaruddin by building capacity, developing policy and providing resources (such as data and
Partner, ESG Advisory, Hong Kong analytics) and practical guidance.
KPMG China At the same time, banks in Hong Kong have made progress in understanding the
climate-related risks in their portfolio, and the financial implications. They have set
climate strategies and taken steps to improve the quality of their climate-related
disclosures. Some banks have committed to intermediate (2030 or sooner) and
long-term (2050 or sooner) emission reduction targets, in respect of their own
operations as well as their lending and on-balance sheet investment activities.
In a related move, banks have also been taking steps to acquaint clients with
green and sustainable finance products to help them reduce their own carbon
emissions.
With many clients in the real economy only starting to understand their climate
and transition related risks, the availability of complete, accurate and reliable
information is a concern for many banks. Greenwashing risks and regulatory
and public scrutiny often deter banks from taking more progressive action. The
HKEX’s proposals to mandate climate related disclosures aligned with ISSB
standards33 by 2025 is a welcome development. This will not only pave a path
to greater transparency, reliability and comparability globally, but also greater
accountability. For banks, this means accountability in their role as agents for
change for their stakeholders, including real economy clients.
Within this role, there are three priorities where the banking sector should take
a lead: proactive client engagement, collaboration and partnerships with service
providers, and becoming a guardian of data.
33
The International Sustainability Standards Board (ISSB) Climate Standards that builds on the principles of the Task Force on
Climate related Financial Disclosures (TCFD) recommendations and sets out detailed climate disclosures
Proactive engagement with clients brings competitive

advantages
Many have likened the booming development of ESG and sustainability to the
digital developments in the banking sector in the middle of the last decade.
Banks transitioned from a paper-based account opening process that took an
average of six weeks to complete, to a fully digital onboarding process that takes
around five minutes. This has increased customer loyalty, and has been key to
cost reduction.
The transition to ESG is creating opportunities for banks, but there are also
hurdles. Most banks acknowledge the role they can play in directing finance to
projects that deliver a positive environmental or social outcome and help their
clients transition to sustainability. However, when it comes to engagement with
clients, client-facing staff often do not feel equipped to proactively initiate this
contact.
Providing role-based training to client-facing staff that positions them to

critically diagnose their clients’ needs and opportunities is a good starting point.
Such training should be integrated with the workflow of the role, allowing for
continuous practical application. Client-facing staff should be equipped to provide
insights and data to drive client conversations, identify strategic opportunities and
explain how the bank can finance the client’s sustainability objectives.
A good way for client-facing staff to engage with their clients is by providing
insight on sector trends and how their clients are performing compared with their
peers. A good source for this information may be within the bank’s own transition
plan, which will include sector-specific carbon reduction goals and granular
sectoral transition plans; as well as transition plans of their clients.
Proactive early engagement with clients is necessary to ensure the bank is

well-positioned to reap the benefits. Other than customer loyalty, early studies
indicate that financial performance will start to differentiate between pioneers,
followers and laggards as early as 2030. By 2050, pioneers will see profit growth
between 25%-30%, whereas followers are at 5-10% and laggards are at -10-
20%34.
Collaboration and partnerships with service providers

Collaboration with service providers across sectors and jurisdictions is crucial in
the fight against climate change. Working together is no longer optional, it is an
imperative. However, few banks are leveraging their existing relationships due to
the way programmes are generally set up.
Service providers are managed from the perspective of third party risk and
compliance with regulations. When it comes to addressing pressing economic,
social and environmental pressures that affect businesses globally, this approach
excludes them as potential candidates for collaboration.
But what if service provider relationships were not managed as a risk, but
engaged with as a business proposition? This could open up new collaboration
opportunities and a mutually beneficial relationship. Some questions that banks
can ask include:
• Sustainability data – which service providers might be able to augment

climate-related or sustainability-related datasets based on the clients they
serve and the nature of service they provide?
34
Bain & Company identifies “pioneer strategy” that could deliver profit growth of 25-30% for banks that accelerate transition to
net-zero carbon emissions by 2050 | Bain & Company
• Network – which service providers could enable the bank to grow its formal
and informal networks and scale the delivery of sustainable finance solutions?
For instance, which service providers have access to industry associations or
government departments, or otherwise have influence within their sector?
• Technology – are there service providers that provide an effective

technological solution in one area of the business that can be leveraged for
sustainability goals? Which service provider’s solutions will optimise customer
loyalty to the bank’s sustainability brand?
• Knowledge and capability development – which service providers are able

to provide technical expertise which can be leveraged to provide the banks’
customers with support on sustainability?
Critically, to get more value out of relationships with service providers, a starting
point is to see them as potential candidate partners with whom banks have
a shared goal on sustainability, and a shared intent to co-create solutions for
pressing ESG problems.
Becoming a guardian of data

Data is already crucial to ESG and will play a more prominent role in the future as
everything from risk management, performance measurement and reporting is
dependent on the availability of good quality data. Banks will also need to ensure
they have reliable data to meet regulatory obligations. This is especially pertinent
where data transparency will be driven by assurance requirements.
Banks are faced with a number of ESG data challenges. The issues include
whether the data that is currently available is sufficient to fulfil disclosure needs,
not only in relation to support the basis for disclosures made, but also in relation
to Scope 3 emissions and scenario analysis. More scrutiny is expected on
whether data sourced is accurate, credible and at the level of granularity needed.
There are also questions about the consistency, transparency and auditability of
the data based on which decisions are made.
Where there are known gaps and limitations in data, banks should proactively
manage expectations of both internal as well as external stakeholders. They
should be transparent about data limitations and/or uncertainties associated
with the data and the potential impact these limitations could have, and should
communicate the consequences clearly.
From a data governance and data management perspective, banks should ensure
ESG-related data is handled appropriately, in compliance with relevant laws and
regulations, and commensurate with the levels of risk associated with the data,
and monitored with the same rigor as conventional financial data. They should
also review if the data quality standards and control measures are adequate; and
continuously review and update processes and standards in line with the latest
regulatory requirements.
Banks should also review and make sure that they fully understand their data
sourcing and data ingestion methodologies and traceability measures. This will
provide guidance in identifying required KPIs and metrics. It will also enable them
to evaluate ESG policies and management systems, and deploy more advanced
analytics to support the generation of better quality insights.
Climate Risk Management
Besides fulfilling regulatory expectations, banks are

embedding climate risk management practices across
different areas and taking the opportunity to drive value
Banks across the Asia Pacific are in the process of implementing the latest
measures to systematically manage climate-related risks in their business
models. They are aligning their practices with expectations on climate and
Gemini Yang environmental risks, led by regulators from Hong Kong and other jurisdictions
Partner, Financial Risk Management including the Chinese Mainland, Singapore and Australia. Adoption progress
varies across the region and size of institutions.
KPMG China
Regional regulators have released climate-related guidance, and in some cases,
conducted pilot climate risk stress test (CRST) exercises. As part of sector-wide
capability-building efforts to enhance climate resilience, regulators have continued
to promote the adoption of effective tools such as scenario analysis and stress
testing.
Banks in the region are responding to regulatory expectations through

implementing climate risk management practices, developing quantitative
analytical models and releasing climate risk disclosures. Leading banks are
adopting more advanced initiatives to further embed climate risk into their risk
management frameworks as well as business processes.
However, there are pockets of resistance throughout the region where climate
risk mitigation has been put on the back burner as some economies deal with
the post-pandemic recovery by pursuing resource-heavy economic growth. Banks
are presented with the challenge of balancing risk appetite frameworks between
prioritising growth versus climate resilience.
HKMA enhances climate risk stress testing framework

Following the HKMA’s successful climate risk stress test pilot in 2021, banks
in Hong Kong are now entering the second round of stress testing, which will
run from June 2023 to June 2024. Drawing on the experience gained from the
pilot and industry feedback, for the second round the HKMA has enhanced the
CRST framework with a view to obtaining a more comprehensive assessment of
authorized institutions’ (AIs) exposures to climate risks, as well as strengthening
their capabilities in managing them. The major enhancements are:
• Scenarios – a new five-year scenario has been introduced to assess the

potential impacts on participating AIs arising from simultaneous economic
and climate-related shocks. The new scenarios and the long-term scenarios
developed by the Network of Central Banks and Supervisors for Greening
the Financial System (NGFS) can complement each other to provide useful
insights on the banking sector’s climate resilience covering both the short
term and longer term scenarios.
• Assessment requirements – apart from exposures to highly vulnerable to

climate-related shocks (e.g. coal, oil and gas, cement, steel and chemicals)
exposures that are usually considered less susceptible to climate change will
also be covered.
• Reporting standards – more detailed reporting standards than in the pilot

exercise have been developed for each of the scenarios.
As before, the stress testing includes variables directly related to climate change,
like physical risk from rising sea levels and transition risk such as carbon prices.
A new addition is that economic changes have been embedded. Banks will now
have to merge their traditional macroeconomic variable-driven stress testing with
the new climate change-related stress testing. This will not be a simple A+B
exercise, and banks will need to build new models to merge these two different
stress tests.
This is part of a general trend as central banks around the world are enhancing
their scenarios to integrate variables from both the macroeconomic environment
and climate change.
Banks should ensure that they understand the HKMA’s framework and consider
building -- if they haven’t done so yet -- comprehensive approaches to assess
the risk factors and metrics. These reporting standards are very specific, so a
superficial assessment will not be sufficient.
The challenge for banks will be ensuring that they have the data systems and
modelling capabilities to fulfil these enhanced requirements. Due to regulatory
action and support over the past three years, some local banks have conducted a
lot of work on climate risk, so are generally well prepared to move forward to the
next level.
New physical risk assessment platform and green taxonomy

To help the banking sector to adapt to climate change, the HKMA is currently
setting up a physical risk assessment online platform to support all the local AIs
that come under the regulator’s remit. All banks in Hong Kong will be able to
leverage this platform to analyse their existing physical risk portfolio.
Regulators from non-banking financial sectors may also consider leveraging the
HKMA platform to develop their own versions. The various financial regulators
in Hong Kong work closely together as part of the same cross-agency working
group to promote sustainable finance and collaborate on green initiatives that
benefit the whole sector.
The new platform is also a significant development for Hong Kong, as HKMA
is the first regulator globally to introduce such an initiative. It sends a positive
signal about Hong Kong’s capabilities in climate risk, and shows that the city is a
proactive leader in green and sustainable finance.
In the future, banks in Hong Kong will also be able to draw on a green taxonomy.
The HKMA, like many other jurisdictions, is working to develop its own set of
standards. Once these are established, this will enable banks to classify their
portfolios in terms of sustainability, and to identify which potential investments
will trigger larger transition risk.
This taxonomy will create considerable financial reporting related impacts, but will
also help banks to further demonstrate how they are managing their climate risk
and their sustainability credentials.
Climate risk profiling and seizing opportunities

While banks have been carrying out climate risk stress testing and otherwise
enhancing their green capabilities in response to regulatory requirements, it is
not just a box-ticking exercise. There is also the opportunity for them to use the
process to drive value and grow the business.
If banks can demonstrate that they are managing their risks well and that they
have developed excellent climate risk management capabilities internally, this
will give them greater bargaining power to win more business opportunities.
They can also use their expertise to develop new products such as green loans,
green bonds, and other green investment products, which are a growing area of
interest among investors.
Banks in Hong Kong have generally made excellent progress in the past few
years on climate risk. In addition to the climate risk stress testing, they have also
had to fulfil other requirements, such as the submissions for the Task Force on
Climate-related Financial Disclosures by mid-2023.
Besides keeping up to date with regulatory developments, banks have made

considerable efforts to train their staff to understand the topic. Relationship
managers and middle-office staff are therefore more able to collect the crucial
information from the customers, especially those in high-emission industries.
There has also been good progress in areas like KYC and due diligence. This
enables staff to mitigate the potential transition risk, and also better assess their
customers for credit approval and other services.
Credit approval revamp

Banks have also been embedding climate risk considerations throughout the
credit approval process including climate rating, Equator Principles due diligence
and pricing. This understanding of how to manage climate risk quantitively
means that banks can help to drive change in the real economy. Skilled staff can
effectively review their corporate customers’ portfolios, and explain the impact
if they do not become more sustainable. For example, high-polluting businesses
will find it more difficult to access funding as they will face more stringent credit
limits and higher credit interest. Already, greener businesses are able to access
loans with more beneficial interest rates.
Some banks are exploring multiple avenues of embedding the financial

implications of climate risk into business processes such as due diligence,
underwriting, credit approval and annual reviews. These practices are exploratory
in nature and expected to be fine-tuned over time. Ultimately, having a fuller
understanding of the financial implications should then spur corporates to take
action to remedy the situation and improve their sustainability standing.
Virtual Assets
Regulatory developments in Hong Kong provide

greater certainty for global investors while some
cryptocurrencies recover in value after a tumultuous
year
After a tumultuous 2022 for the virtual assets sector, the upheaval has
continued into 2023 with the collapse of banks including Silvergate Bank and
Barnaby Robson Signature Bank, key lenders to the crypto industry. At the same time, there
Partner, Deal Advisory, Hong Kong have been some more positive signifiers, such as the recovery in value of some
KPMG China cryptocurrencies, and, in Hong Kong, proactive support from the government.
However, there is no doubt that the collapse Silvergate Bank and Signature Bank
was a significant blow for the industry. One of the key services they provided
was crypto on- and off-ramps – turning virtual assets into fiat money, and vice
versa.
There is now a concern that if the major on- and off-ramps are closed and there
are fewer providers, the costs of on- and off-ramps will continue to rise. There is
also a risk that investors could get shut out from their investments if it becomes
too difficult to exchange fiat and crypto.
Robert Zhan
Cryptocurrency recovery
Director, Risk Consulting, Hong Kong
KPMG China Although the industry has seen a lot of turmoil in the past year -- including
the collapse of crypto exchange FTX and stablecoin Luna in 2022, and the US
Securities and Exchange Commission suing Coinbase and Binance in June 2023 –
in certain aspects it has bounced back recently.
Some of the biggest cryptocurrencies have seen their values recover in 2023
after plunging last year. Ethereum has reached US$2,000, having dipped to below
US$900 in 2022. Meanwhile, Bitcoin reached US$30,000 in mid-April for the first
time since June last year, although it dropped back slightly to around US$26,000
by early June.
Jordan Sanders
Associate Director, Deal Strategy,
Hong Kong
KPMG China
There are a number of reasons why this is happening. There is a theory among
some crypto investors that Bitcoin acts like hard money such as gold, in contrast
to fiat currencies -- especially the US dollar where there are concerns about the
US debt ceiling and printing money.
The demise of Credit Suisse and a number of US banks has also played a role in
the revival of crypto, as it plays into a broader lack of trust in institutions among
some investors, which was one of the key drivers of interest in cryptocurrencies
in the first place.
A related trend has been towards alternatives to the US dollar. In particular,

use of the RMB in international trade has grown in recent years, with Brazil and
China’s deal to use the RMB rather than the US dollar being a recent example.
So, Bitcoin is also attracting attention due to its role as another alternative
currency.
Ethereum’s rising price is partly due to the recent transition to a full-featured

proof-of-stake network. Investors are now able to withdraw their assets as and
when they want, with limited liquidity risk and almost no execution risk, which
had previously kept some investors at bay. It is anticipated that institutional
investment will increase into ETH staking over time following these changes.
Regulatory developments and attracting investment

One of the biggest topics of discussion in the industry currently is the shifting
and diverging global regulatory environment. In the US, for example, there has
been a debate on whether to define a virtual asset as a security or a commodity,
impacting who will be the regulator.
Hong Kong is among the jurisdictions that has moved towards more regulation,
including a new licencing regime for centralised virtual asset trading platforms
that trade non-security tokens, which came into effect on 1 June. The
introduction of more regulations in Hong Kong and some other jurisdictions are
providing more stability to a market that had previously been seen as not having
much certainty.
The VATP regime has so far attracted companies from both the start-up and more
traditional finance realms, in addition to the exchanges already based in the city.
What remains to be seen is how many of these applications will be approved by
the SFC, which will prioritise maintaining Hong Kong’s reputation as a stable and
reputable financial centre.
Certain virtual assets players, including some in decentralised finance (defi),

are less keen to be based in a regulated jurisdiction. However, many others
welcome the increased security of a well-regulated environment and a number
of companies in the sector have moved to the city recently and indicated their
intention to apply for a licence.
Besides crypto exchanges, other virtual assets businesses that have moved to
Hong Kong recently include some that are interested in developing blockchain
applications across the whole virtual assets ecosystem. Another benefit of Hong
Kong being a well-regulated location for virtual assets is that global investors
interested in the sector are likely to want to deploy their capital in a more stable
jurisdiction.
Another good sign for the sector is that virtual asset companies in Hong Kong
are continuing to attract investment. Start-ups that provide a link between digital
assets and traditional finance are among those that have been successful in
getting funding recently. One example is a platform that allows users to stake
NFTs, which can then be collateralised against US dollars, Hong Kong dollars or
cryptocurrencies. Another area attracting attention is payments, such as start-
ups that are working with traditional credit cards to enable the use of digital
currencies.
In contrast, virtual asset firms operating purely in the defi space are not getting
as much traction at the minute.
Besides its efforts on the regulatory side, the Hong Kong government has been
active in the market. Government officials including Financial Secretary Paul
Chan, as well as senior executives from the SFC and HKMA, have spoken at
industry events across the region about their plans to support Hong Kong as a
hub for virtual assets.
Traditional banking impact

Many traditional financial institutions are interested in the virtual assets space
to varying degrees, including decentralised finance. Some frontrunners are
participating in proof-of-concept projects, such as issuing tokenised securities
as a proof of concept. Others are paying close attention to the market but not
actively getting involved. Then some are disconnected from the conversation
altogether, at least from a leadership perspective.
However, major banks are not ignoring the sector and many are using blockchain
technology as part of their internal processes and in areas including trade
finance solutions. For example, a number of major banks have been working
with a cross-border payments network that uses blockchain technology. Broadly
speaking, banks in Hong Kong are making sure that they understand the
technology and that they will be in a position to adopt it in the future.
Another good sign for the sector is that virtual

asset companies in Hong Kong are continuing to
attract investment. Start-ups that provide a link
between digital assets and traditional finance are
among those that have been successful in getting
funding recently.
Wealth Management
Policy changes, growing wealth across the region

and new generations of investors are creating new
opportunities for Hong Kong’s wealth management
sector
Gerard Sharkey The wealth management market in Asia is presenting a significant growth
Partner, Wealth Management, Hong Kong opportunity for many banks in Hong Kong. This is being driven by a number
KPMG China of factors including the outlook for increased economic growth and wealth
generation in the region, the fact that Asia is a relatively new wealth
management market, and policy changes in Hong Kong and the Chinese
Mainland that will support the continued development of the industry.
Over recent decades, there has been a significant level of emerging wealth in
Asia, particularly in China, that was created by first-generation entrepreneurs
and business owners. That wealth is now being passed down to the second and
third generations. At the same time, the Chinese Mainland’s GDP has grown
Chee Hoong Tong significantly creating new first-generation wealth. All of this is creating more
Partner, Asset Management, Hong Kong opportunities for the wealth management sector.
KPMG China
Mainland China market outlook
Given these developments, many Hong Kong banks have focused on the China
market. Traditionally, this has been through the offshore model, where the bank
and booking centre for the wealth management business is based in Hong
Kong. The bank targets onshore clients who have capital assets in Hong Kong,
and provides them with investment advice, access to a broad range of products
Leon Ong and, for ultra-high-net-worth (UHNW) clients, access to estate planning and trust
Partner, Financial Services services.
KPMG Singapore
The potential of China’s wealth management sector is being shaped to a certain
extent by policy developments. At the 20th Party Congress held in October last
year, a number of themes emerged, including:
• Quality development – an increased focus on high-tech industries, real

economy and science, which will drive more wealth generation
• Dual circulation – which includes opening up the China market to increased

Jamie Green international trade and collaboration with foreign institutions, including foreign
Partner, Global Wealth Management banks. In this context, Hong Kong is well positioned to play a role as a ‘super
Platforms & Transformation connector’.
KPMG Switzerland
• Common prosperity – which aims to raise standards for those on lower

incomes and increase the size of the middle class.
Another driver for wealth management is the shift away from traditional forms
of investing. Historically, people in China have saved cash, invested in risky
products or put their money in property. Real estate investment is likely to have
a diminished role going forwards, partly because of the fall in values but also
due to the China government’s policy that “Property is for living in and not for
speculation”.
As household savings are redirected from property into financial investments,

Chinese investors will need better wealth management services, especially as
there is also an increasing emphasis on wealth preservation and succession
planning. It is expected that investors will start to seek more holistic wealth-
planning advice and portfolio construction capabilities, and will also look to have
investment holdings that are more diversified, to spread their exposure to risk.
To play a part in the growing China market, foreign banks have been positioning
themselves in two ways. One is the offshore model, as described above where
the client’s account may be booked in Hong Kong or Singapore, and another is
the onshore model: over the last decade, a number of multinational banks have
established securities entities and locally incorporated banks onshore so they
can deliver private wealth management services in China. This has been a long
process, and also a learning process for many of them, given that domestic
wealth managers have much a larger customer base, distribution strength and
a deeper understanding of onshore clients’ needs. However, this long-term plan
has started to pay off and foreign banks are now seeing more interest in their
products and services.
Foreign banks with onshore presence seeking to seeking to capitalise on growth

opportunities in the wealth management sector should ensure that they develop
products and services that are relevant to customers’ evolving needs, continue
to broaden their distribution capability and continue to invest in their brand to
increase recognition and differentiation in a high competitive market.
Hong Kong market outlook

Wealth managers based in Hong Kong are broadly optimistic about growth
in the sector in the next few years. In last year’s KPMG PWMA Hong Kong
Private Wealth Management Report35, 67% of survey respondents said that they
expected to see annual growth of between 6% and 10% in the next five years,
with 22% of respondents anticipating growth of between 11% and 20%.
Furthermore, the reopening of the border in early 2023 has been a very positive
development. The long period of travel restrictions created significant pent-up
demand, and now clients from the Chinese Mainland can come to Hong Kong to
open accounts and explore other wealth management services.
The Hong Kong government has also introduced a number of policy incentives.
These include the new family office tax regime, which provides a profits tax
exemption for qualifying transactions in Hong Kong and encourages UHNW
families to set up a family office in the city. These clients tend to have complex
requirements including assets in multiple jurisdictions, succession planning and
insurance needs.
Another incentive, announced in this year’s Budget, are changes to the Capital
Investment Entrant Scheme. This scheme allows individuals to gain residency
in Hong Kong if they invest a certain amount in local assets, including equities
listed in Hong Kong. Such programmes should attract more capital to Hong Kong,
which will in turn drive the demand for wealth management services.
Private banks that plan to meet the demand of new family offices setting up in
Hong Kong will need to ensure that they can provide the breadth of services that
UHNW families will need in addition to wealth advisory capabilities including trust
services and succession planning, wealth preservation and insurance solutions,
access to a network of tax and legal advisors, and for selected clients the ability
to meet their ESG related and philanthropic needs.
Themes and challenges

A number of other themes will shape Hong Kong’s role as a hub for the wealth
management sector.
Virtual assets will continue to be an interesting area, especially as Hong Kong has
introduced more regulatory clarity, including licensing requirements to operate
a virtual assets trading platform and clear rules around the sales and suitability
obligations for wealth managers if they plan to provide their clients with access
to virtual assets. It is early days for these types of assets in the private wealth
management sector, but potentially an emerging trend over the next few years.
Private wealth managers should gauge their clients’ appetite for virtual assets,
particularly UHNW clients who may be trading on virtual asset exchanges directly
or gaining access via hedge fund investments, and explore building linkages with
licensed exchanges in Hong Kong and updating suitability rules and portfolio
advisory tools to accommodate this emerging asset class.
Over recent years wealth managers in Hong Kong have invested heavily in digital
propositions. These have developed from simple propositions such as giving
clients the ability to buy and sell equities and other products to providing clients
with educational content, research and actionable investment ideas. Banks have
also invested in AI to better understand clients’ needs and interests, which is
also giving relationship managers more information to enable them to have more
insightful discussions with clients. Looking to the future, private wealth managers
should start exploring the use cases for large language models and generative AI
across the bank, whilst being mindful of the risks of this emerging technology, as
it is likely to have a significant impact on client servicing, market and data analysis
and risk management.
35
KPMG PWMA Hong Kong Private Wealth Management Report 2022
While the Chinese Mainland will likely remain the key driver of Hong Kong’s
wealth management sector, the emerging wealth across the rest of Asia is
also creating a growing middle class is providing a further and growing market.
Associated with this segment is the growth of the robo-advisory landscape
across Asia, which while still small in absolute terms has been growing steadily.
Private wealth managers, particularly those with an affiliated asset management
business, should assess if robo-advisory tools can be deployed to provide a lower
cost distribution channel in developing markets.
Another theme that will impact the wealth market is the shifting demographics
in the Chinese Mainland and across the rest of Asia as wealth passes
down to the second and third generations. These younger generations have
different requirements, especially when it comes to ESG and sustainable
investing. Currently, there is a scarcity of products in this space to meet the
rising interest, so there is an opportunity for Hong Kong wealth managers to
differentiate themselves in terms of offering a range of ESG and sustainability
products. Private wealth managers should seek to understand their clients’ ESG
perspectives, priorities and needs during client onboarding or during periodic
portfolio reviews, have a robust product due diligence process supported by
appropriate data feeds, and develop reporting tools and dashboards that allow
customers to track the impact of their investment in terms of their specific ESG
priorities.
Wealth managers in Hong Kong will also need to manage ongoing challenges.
For example, there is pressure to increase efficiency and manage costs while
also pursuing growth opportunities and increased revenue to maintain, and ideally
reduce, the bank’s cost-income-ratio. Additionally, scarcity of talent is likely to
remain an issue for the foreseeable future as banks compete for experienced
relationship managers and individuals with product and regulatory expertise.
Private wealth managers will therefore need to continually look for opportunities
to reduce variable and fixed costs, for example by consolidating support activities
and infrastructure across booking centres and at the same time build an operating
model, products and services suite. They should also create a corporate culture
that will develop, attract and retain the best relationship managers and client-
facing staff.
The next couple of years will be exciting times for the Hong Kong wealth
management sector as competition intensifies, further opportunities in the
Chinese Mainland emerge, new technologies become available, and wealth
providers navigate the challenges and risks associated with operating in the
sector.
Business
Transformation
Business Transformation
Technology Risk and AI
Generative AI can offer a range of benefits to banks in

areas beyond customer service, but will also introduce
new risk considerations
The rapid evolution of technology including artificial intelligence (AI) is enabling
banks to continually refine their services to customers and improve the efficiency
of their back-office operations. But with evolving technology comes evolving
Lanis Lam risk, and banks must ensure that they are protected as they roll out digitalisation
Partner, Technology Risk, Hong Kong programmes and adopt new tech.
KPMG China One of the most high-profile developments recently has been generative AI, such
as ChatGPT, which can create new content including text, images and videos in
response to prompts. ChatGPT was only released to the public in November last
year but has already attracted a huge amount of attention. Generative AI is more
sophisticated in responding to requests than previously available AI technology
and can be customised more easily. For banks, it has potential use cases in many
areas including chatbots, marketing, AML and cybersecurity.
Banks in Hong Kong have already been using AI in their customer service
chatbots. The more advanced AI that is emerging means that the chatbots will
be able to answer more complicated questions and provide more precise and
detailed answers. Banks in the United States and some other jurisdictions have
already been using AI in various areas, and it has been estimated that this can
reduce operational costs by as much as 40%.
Managing risk
With generative AI, from the technology risk perspective, one of the hot topics is
the integration of responsible AI practices into AI adoption as new use cases are
adopted.
For example, data privacy issues could arise in the conversations between
customers and chatbots. The question is whether, and to what extent, these
conversations will be used to train the AI models, and what that means for
the customer’s data privacy. More generally, banks must consider the risk
implications as they increasingly incorporate AI in areas including customer
communication and data analytics, as well as streamlining and automating their
manual processes.
To use AI effectively while protecting against risk there are some key areas banks
should be focusing on: data quality, transparency, compliance, cybersecurity and
governance.
• Governance and Oversight: Proper governance and oversight are essential

to ensure that AI systems are making decisions that align with the bank’s
values and goals.
• Data quality: Banks need to ensure that the AI data is reliable. AI systems
are only as good as the data they are trained on, and poor quality data can
lead to inaccurate predictions, which can have serious consequences.
• Explainability and transparency: AI models should be transparent, and

aspects such as how the training algorithm works should be able to be
explained, to build trust with stakeholders.
• Compliance: AI systems must comply with relevant regulations to avoid legal

and financial consequences, including on data privacy.
• Cybersecurity: Robust cybersecurity protocols are needed to protect AI

systems from cyber threats. Hackers could exploit vulnerabilities in AI
systems to gain access to sensitive data or cause other damage.
The regulators and government in Hong Kong have been keeping track of
technology developments and the risks involved, and have provided guidance to
banks and other businesses.
The Office of the Government Chief Information Officer (OGCIO), Hong Kong
SAR Government, has also released the Ethical Artificial Intelligence Framework,
to provide guidance to businesses and sectors on key areas to consider when
organising AI projects. These areas include, for example, privacy, safety and
accountability, among others.
For banks, the HKMA issued a circular, titled High-level Principles on Artificial
Intelligence, in 2019. The circular provides an overview of the key concerns
around the use of AI and proposed solutions. These include areas such as board
and senior management oversight on the AI applications, the required expertise,
periodic reviews and ongoing monitoring, and contingency plans in case of any
identified issues.
With evolving technology comes evolving risk, and

banks must ensure that they are protected as they
roll out digitalisation programmes and adopt new
tech.
Emerging use cases

While AI offers new opportunities and potential use cases in a number of areas
beyond the chatbot, it is important to ensure that potential risks associated with
its use are understood.
A new use case example is AI can identify unusual patterns in transactions that
may be suspicious when reviewing fund transfers. Currently, AML involves
a lot of manual handling and time spent dealing with exceptions. Reducing
these exceptions through AI adoption, instead of pre-defined rule-sets, will help
productivity and increase efficiency.
Another promising use case is robo-advisory in wealth management, which can

provide advice to customers on reaching their wealth goals. This market has been
expanding in recent years so it is a good time for banks to explore how AI can
help create more product options for clients.
Regarding cybersecurity, banks are automating more of their processes, including

how to use technology to respond to the threats automatically. In the future, AI
might also be able to reduce the risk further by identifying hacker behaviour.
It is highly likely that AI and other emerging technologies will become even more
important to banks across a variety of areas of operation in the next few years.
Banks should be preparing now to ensure that they have the risk frameworks
in place, as well as the right talent to support them as AI becomes even more
critical to banking operations and services.
Outsourcing
Taking a strategic approach to using managed services

can add value to banks, increase efficiency and
improve user experience
As banks in Hong Kong have been returning to normal post pandemic, it seems
that the benefits of outsourcing have become more widely accepted. With
the threat largely passed, banks have had an opportunity to review the impact
Egidio Zarrella of disruption, consider how markets have changed and review their business
China Outsourcing Leader, models. For example, some have found inefficient cost structures, including
large workforces that are no longer focused in the right areas for growth or with
KPMG China
the right skills to take the business forward. Others that necessarily reduced
investment during uncertain times have fallen behind, in particular in the area of
technology and digital transformation.
At the same time, post-pandemic economic growth has been muted, while costs
have remained high, so there is a clear incentive to find more efficient ways
of working. Such pressure on banks’ budgets ultimately reduces their ability to
invest and innovate and could affect competitiveness over the longer term.
Outsourcing can save costs and improve efficiency and accelerate change, while
also freeing up organisational talent to focus on the most important aspects of a
Rupert Chamberlain business. A recent KPMG report that surveyed hundreds of executives globally
Partner, Head of Managed Services, across a range of sectors found that 75% of organisations planned to increase
KPMG China spending on managed services in the next two years.
Taking a strategic approach

While outsourcing can certainly reduce costs, the use of premium Managed
Services can go much further helping add value to businesses, reduce risk
and enhance outcomes. Banks that take a more strategic approach and work
together with service providers that have deep subject matter expertise and
transformation skills will be able to identify key challenges and find workable
solutions amid an uncertain and rapidly evolving business environment.
Advisory Managed Services are focused on strategic and business outcomes,

and can be used across a bank’s operations, including in complex and confidential
areas, such as risk compliance and regulatory reporting as well as potentially
sensitive areas such as customer and supplier engagement. Services can

be adapted to the business’s changing needs and in response to market or
regulatory conditions and can be scaled globally if required. This compares to a
traditional view of outsourcing as business process outsourcing (BPO) model,
which offers low-cost solutions for back-office or peripheral functions, often with
limited technology and one-size-fits-all options.
Outsourcing has clear benefits in such technology transformation programmes,

as automating processes reduces costs while also relieving pressure on
manpower. Many banks and other large corporates have been carrying out major
transformation projects in recent years and turning to strategic outsource service
providers to deliver on those programmes. Banks that need to transform should
consider how strategic outsourcing might help them in their journey and beyond
in delivering sustainable outcomes.
Complex areas
Besides the more obvious ‘traditional’ areas for outsourcing such as IT Services,
there is now growing appreciation in the banking sector that many other
areas that were previously kept in-house can also be outsourced. These range
from payroll, HR and tax compliance -- including monthly returns, third-party
risk management, regulatory returns and tax computations – to more directly
regulated areas such as KYC and AML, and areas where having leading edge
technology is increasingly important such as fraud risk monitoring.
Whistle blower services, a regulatory requirement for companies listed in

Hong Kong, is another area that is often outsourced and this can be broadened
to include an employee ethics reporting line. A trusted independent third
party running such a service is seen as best practice and if an investigation is
subsequently required, it can also be carried out by the outsourcing firm that has
the relevant expertise.
75%
Proportion of organisations that plan to increase
spending on managed services in the next two
years, according to the KPMG report, Managed
services: A new value proposition
As well as handling ongoing services, managed service providers may be a good

choice for dealing with new developments, such as new regulatory demands.
Rather than build the capability in-house from scratch, third party firms with the
relevant expertise may be better placed to handle the relevant requirements. For
example, the changing regulatory landscape around ESG reporting is a crucial
topic that banks must keep on top of, but it is also an area where talent is scarce.
So it may make sense to outsource aspects of ESG, such as assessments of
borrowers or vendors to firms that have the sustainability experts and work with
the right external data providers.
Besides deciding what areas to outsource, banks will also need to consider the
different types of firms in the market, and consider which best suits their needs
for particular projects. These include niche providers that focus on a particular
specialism, as well as larger firms that offer a more holistic approach and can
form a broader relationship with the bank across different business areas.
Measuring success
Once an outsourcing programme is up and running, there are different ways
that banks can measure its success. Cost savings are the most obvious metric.
But perhaps even more important is on the regulatory side. Managed advisory
services enable banks to meet the changing regulatory requirements in all the
jurisdictions where they operate where they may not have the business scale to
cover the cost of compliance.
Customer satisfaction is another area that can be measured, and banks will be
able to assess whether the changes that have been put in place through an
outsourcing project have improved the experience of dealing with the bank for
customers and vendors.
Talent is another crucial area where using advisory managed services can have a
significant impact by offering a solution to the manpower shortage that has been
a long-running problem not just for banks but also for many other sectors in Hong
Kong. External service providers will have not only the technology and know-
how in their particular area, but also the specialised and trained staff to more
effectively carry out the work.
Besides the many benefits for the banks in terms of reducing pressures related
to manpower shortages, the results of a successful outsourcing programme also
has the additional advantage of improving employee satisfaction with their job
and working environment.
While outsourcing can certainly reduce costs, the

use of premium managed services can go much
further helping add value to businesses, reduce risk
and enhance outcomes.
China Data
New laws on cross-border data transfer affecting

foreign banks operating in the Chinese Mainland take
effect
Cybersecurity and data protection have become standard practice for banks, but
this does not mean that these topics have been put on the back burner. Banks
must remain constantly vigilant against cyberattacks, while also staying up-to-date
Richard Zhang with the shifting regulatory landscapes in the jurisdictions where they operate.
Partner, Technology Risk In the Chinese Mainland, three significant laws have come into effect in
KPMG China recent years: the Cybersecurity Law, the Data Security Law, and the Personal
Information Protection Law (PIPL). The most recent developments in this area
are the Measures for the Security Assessment of Cross-Border Data Transfer,
which came into effect in September last year and the Measures for the Standard
Contract for the Outbound Transfer of Personal Information which will become
effective this June. These two regulations implement the provisions of the three
above-mentioned laws relating to cross-border data transfer.
Under these measures, banks and other businesses involved in cross-border data
transfer will need to:
• assess whether they meet the threshold defined by the Cyberspace

Henry Shek
Administration of China (CAC), and
Partner, Technology Risk, Hong Kong
KPMG China • choose an applicable path for managing cross-border data transfer activities.
They can either apply to CAC for approval if the threshold for the Security
Assessment of Cross-Border Data Transfer is met, or file the signed Standard
Contract and other relevant materials at CAC. The threshold includes businesses
that transfer personal information (eg phone number or email address) of more
than 100,000 individuals, or sensitive personal information (eg bank details or
health records) of more than 10,000 individuals, since 1 January of the previous
year.
Kevin Zhou
Director, Technology Risk, Shanghai
KPMG China
The first step for banks that meet the threshold is to carry out a self-assessment,
and make their submission to the CAC. As part of their application, banks need to
explain why they need to transfer data out of the country. For global banks, the
intrinsic nature of their business means that they are interconnected, and cross-
border data transfer is essential for areas like AML and KYC. But the size and
global nature of banks also mean that there are a wide range of potential cross-
border data transfer scenarios that need to be covered, adding further complexity
to their filings.
The deadline for applying for approval from CAC was in March 2023. Therefore,
banks and businesses have already made their submissions and are now awaiting
approval or other comments from the regulator.
Next steps for getting CAC approval on self assessment

So far, CAC has issued a small number of approvals. However, as the law applies
to a wide range of businesses as well as banks, there has been a high volume of
applications, so it will take some time for the regulator to review all of them. For
very large and complex organisations that deal with a lot of data, such as global
banks, it is likely that the process will be more time-consuming and will therefore
take longer for the regulator to review each application.
Financial institutions must also undergo an additional step as part of the process,
as the CAC needs to consult the National Administration of Financial Regulation
(NAFR) before issuing approval. The NAFR is a new regulator that has replaced
the China Banking and Insurance Regulatory Commission as part of the Central
Government’s recent changes to a number of regulatory bodies.
The CAC is currently working through the applications, and in some cases,
it has given feedback to applicants and asked for further information and
documentation. This means that banks have the opportunity to take remedial
action and consult third-party experts to help fine-tune their applications.
It is possible that the regulator will grant conditional approval to some banks on
the proviso that further conditions are met, such as remediating certain data-
transfer scenarios. Once these conditions have been met, then approval will likely
be granted.
While the new laws have introduced a significant change to how businesses
operate in China with new compliance demands, banks may be in a better
position than businesses from many other sectors. Financial institutions are
very well regulated globally, so banks are generally accustomed to dealing with
regulatory requirements. In addition, overseas banks with a presence in the
Chinese Mainland will also be familiar with Chinese processes and expectations.
Companies from other sectors, such as hotels, retailers and taxi-hailing firms,
that are also affected by the new cross-border data transfer rules, may find the
process more difficult as it is a new experience for them.
Standard Contract
The Standard Contract applies to businesses that do not meet the threshold for
the Cross-Border Data Transfer self-assessment for filing to the CAC, so it will
likely affect some smaller and mid-sized foreign banks operating in China. It is
also notable that the Standard Contract applies to cross-border data transfer of
personal information, and when banks are submitting such contract to CAC, a
Personal Information Protection Impact Assessment report is also required to be
submitted.
Under this requirement, affected businesses will need to revise their data export
processes in line with the regulator’s expectations, and will also need to have a
Standard Contract signed between their China local entity and the global group,
which is the offshore data receiver. The deadline was on 1 June 2023, but there
is also a six-month grace period to give businesses time to ensure they are in
compliance with the measures.
The Standard Contract has many similarities to the GDPR in the EU, which global
banks will already be familiar with. However, it also has some differences in
terms of the scope and filing obligations. One of the key requirements is that
it requires all entities to have the overseas recipient of data sign the Standard
Contract. For foreign branches, this could be their regional headquarters. The
Standard Contract is in Chinese, and as it is a government document, it cannot be
modified, such as being translated, before being signed.
So the offshore signatories may need some assistance from external parties
to ensure they fully understand the Standard Contract and how it affects their
business before signing.
Going forward
Although the Cross-Border Data Transfer requirements and the Standard Contract
are Chinese laws that must be filed in the Mainland, a lot of the stakeholders are
based in Hong Kong, ASPAC or other jurisdictions. As these are key laws for all
businesses that have operations in China, it is important that Hong Kong-based
executives also have a good understanding of the developments in cybersecurity
and data transfer.
Due to the importance of the topic, there is a lot of demand in the market for
guidance to ensure that the approval processes are carried out correctly. The
cost of compliance with the changing requirements is also a consideration. Some
foreign banks have sought assistance from third party firms to get more insight
on what they need to do to follow the requirements in an efficient and cost-
effective manner.
With any new law there will be new challenges to navigate, and it is expected
that the cybersecurity landscape in China will continue to evolve. Going forward,
banks should continue to upgrade their procedures and toolkits to comply with
the current requirements, and stay alert for further guidance from the regulator
that may be announced in the future.
Risk and
Regulatory
Trends
Risk and Regulatory Trends
Operational Resilience
Preparations for OR-2 regulatory regime strengthen

Hong Kong banks’ ability to withstand disruption to
their operations and in third party service providers
Operational resilience has been top of the agenda for banks in Hong Kong in
recent months as they have worked to meet the deadline for compliance with
the first part of the Operational Resilience 2 (OR-2) regime in May. The OR-2
Cara Moey framework ensures that banks are prepared for disruption to services, including
Director, Advisory, Management those provided by third parties, and also requires increased accountability from
senior executives regarding operational resilience.
Consulting, Hong Kong
KPMG China One of the key demands from the regulator as part of OR-2 is that banks
understand where the vulnerabilities are in terms of delivering their services and
are prepared to deal with potential disruptions. These vulnerabilities are across
areas including people, facilities, technology, information and dependencies on
third parties or intragroup entities.
One of the vulnerabilities that the regulator is specifically looking at under OR-2
is risks carried by third parties. Banks are being asked to first of all identify where
they are relying on critical third parties, and ensure that they know their vendors
and the processes involved, so that using third parties is not a case of “out of
sight, out of mind”.
Lanis Lam As part of their operational resilience preparations, banks need to select a range
Partner, Technology Risk, Hong Kong of “severe but plausible” scenarios that could cause disruption to their critical
KPMG China operations, including scenarios related to disruptions at a third party or within the
third party’s supply chain. Banks will need to model the impact if a third party
cannot provide the expected service and how long it will take to recover.
For example, if a bank is relying on one third party for a particular service, it could
back this up by using a second service provider. The same with location: banks
should consider having their service centres based in two or more locations to
split the risk if one centre is disrupted. Using multiple service centres means that
even if one centre is shut down, the others in the region can work together to
provide full coverage.
Beyond the deadline

Now that the first OR-2 deadline has passed, we expect regulators to review the
results of the initial framework development and implementation work and give
feedback on the decisions that banks have made in areas including the selection
Banks will need to carry of critical operations, severe but plausible scenarios and tolerance thresholds. The
regulator will also review banks’ operational capabilities under the banks’ selected
out regular monitoring range of severe but plausible scenarios that would affect their critical operations
of their capabilities following severe disruption given the infrastructure they have in place.
including an annual With their oversight of the entire sector, regulators will also be able to compare
parameters across the industry and may have further insights to share. For
exercise to challenge example, outsourcing could present a concentration risk. Looking at the whole
their operational market, the regulator may find that a number of banks are using the same
material third parties to provide the same service to customers. This would
resilience framework. have a significant impact on the whole Hong Kong banking service capability or
They will also need to the banks’ viability if this vendor was disrupted. In such a scenario, further
diversification of third party vendors would be needed.
to continually invest
It is expected that regulators will use their insights to provide feedback to
in and upgrade their banks and play an active role in shaping the industry’s response to the new
infrastructure under the requirements.
OR-2 guidelines. Ongoing process

Now that the OR-2 deadline has been met, banks are moving to the
implementation phase. In some respects, the work has only just begun, as banks
now have to execute the framework and carry out testing to demonstrate the
validity of the framework they created to achieve service resilience.
This will involve more effort to align enterprise-wide roles and responsibilities.
Operational resilience practices will need to become embedded in day-to-day
operations, and all employees will need to think about their roles and how they
contribute to the bank’s connected operational resilience model with stability.
Moving forward, banks will need to carry out regular monitoring of their
capabilities including an annual exercise to challenge their operational resilience
framework. They will also need to continually invest in and upgrade their
infrastructure under the OR-2 guidelines.
The need to fulfil the regulatory requirements of OR-2 has been a major incentive
for banks to continually monitor and upgrade their operational resilience.
However, banks in Hong Kong also recognise that being able to deliver their
critical operations through disruption is fundamental to their viability and vital for
market stability.
Disruption is becoming a new normal: for example, some leading social media
platforms have experienced significant interruptions to their service in recent
times. And while the demise of Silicon Valley Bank in the US was not directly
related to operational resilience, this crisis serves as a reminder for banks to
prepare for disruptive situations, such as a lot of customers wanting to make
withdrawals at the same time, and the banks’ trading systems are more likely to
come under stress.
Banks should look at operational resilience from the perspective of both acute
disruption and ongoing maintenance and proactively think about what investment
is required:
• Crisis management is number 1: preparing for acute situations within the

organisation where the bank has to react quickly.
• Incident management programme is established to manage all incidents,

especially those that may impact critical operations.
• Continuity planning focuses on the ongoing mitigation of risk, including

ensuring that the banks know what the risks are.
• Operational risk management is identifying the risks, and putting in place an

understanding of tolerance levels.
• Technology and related architecture in the background must be prepared to

run the business through severe disruption within the tolerance thresholds.
Another potential issue for banks is regulatory risk, as regulators will sometimes
need to respond quickly to external events, which will impact how banks operate.
Understanding and accountability

An important element of OR-2 is that it requires the board and senior
management to have increased understanding and accountability regarding
the bank’s performance (financial resilience) from an operational resilience
perspective. Essentially, the OR-2 framework sets the expectation that senior
management will be able to make key decisions around improving the structure
from an operational resilience perspective, including identifying vulnerabilities and
the remedial actions and plans that will be taken.
For additional assurance, boards can ask an independent consultant to help

them review their list of critical operations, severe but possible scenarios and
tolerance thresholds, before submitting to the regulator, as well as more general
operational resilience advice and support.
From a global perspective, Hong Kong is among the most advanced jurisdictions
in having a strong and comprehensive operational resilience regulatory framework
in place. While these regulatory requirements add complexity and demand effort
from the banks, they have considerable benefits.
When a large company has interruptions to its services it often makes global
headlines and can be disastrous for the company’s reputation. For banks, it is
particularly important that disruptions are dealt with swiftly. A strong operational
resilience system means that banks can recover quickly from any disruption and
avoid having a detrimental impact on their clients, from retail customers to major
global corporates.
Ultimately, operational resilience not only benefits banks and protects all their
customers, but also plays a crucial role in strengthening the foundations of Hong
Kong as a stable and secure global finance hub.
Banking Turmoil
Concentration risk and failure to manage assets and

liabilities contributed to demise of a number of banks
globally
The global banking industry experienced a period of considerable turmoil in the
past year as a number of banks collapsed. These developments were shocking
partly because of the speed of the collapse of several of the banks involved, as
Robert Zhao well as the fact that many of them had previously been large and successful
Co-Head, Chinese Financial players in their market.
Institutions, Co-Head, Financial Risk Although most of the issues that led to the collapse of these banks are not
Management, Hong Kong directly relevant to Hong Kong banks, there are still lessons on risk management
KPMG China for all financial institutions to bear in mind.
Reasons for the collapse

One of the triggers for the collapse of the affected banks was the
macroeconomic environment. Central banks around the world have rolled out an
unprecedented programme of interest rate hikes over the past year in an effort to
bring inflation under control.
A side effect of this policy has been a significant impact on the value of bonds,
in particular longer term bonds, which lost market value of as much as 30%.
For banks that were holding a large amount of these bonds and similar types of
securities, this would become a major issue.
The reason that some banks were holding so many of these bonds was due to
their high level of deposits. The boom of the past few years had resulted in a
huge inflow of deposits to banks during 2020 and 2021. Some banks chose to
invest a lot of these deposits in long-term mortgage-backed securities and bonds,
but this meant that they were highly vulnerable when interest rates rose and the
fair value of the bonds dropped.
At the same time, as the global economy cooled in 2022 and the amount of
deposits shrunk, banks needed to adjust their balance sheets and sold some of
the available-for-sale (AFS) securities at a loss. Customers were spooked by this
unexpected development, and many of them rushed to transfer their deposits.
Good practice for banks

From the experience of the collapse of several banks, some reminders of good
practice can be taken on board.
On the asset side, banks should remember that focusing too much investment
in longer term bonds, without hedging their assets, means they will be more
seriously affected by the impact of interest rate rises.
On the liability side, banks should be alert to concentration risk. Similar types
of customers demonstrate similar behaviours, which becomes a problem if
certain customers want to make large withdrawals. This includes have too many
customers concentrated in the same industry, or customers with high levels of
deposits that are not covered by their respective government’s insurance level
for bank deposits.
Associated with concentration risk is reputational risk. When customers are

concentrated within a certain type or sector, they can often also communicate
with each other and share news or concerns easily and quickly. Such a highly
concentrated customer base means that reputational rumours will have a bigger
impact than on banks with a much broader customer base.
Another area to look out for is a mismatch in the duration of assets and liabilities.
A mismatch is normal practice for banks so they can gain a higher return on
their assets, but banks should take care that it doesn’t start to grow far beyond
industry norms.
Some other key issues that banks could consider include governance. Banks
must pay close attention to all the regulatory demands in the jurisdictions where
they operate. However, in cases where regulations have eased, banks should
perhaps consider the impact from a risk perspective and check whether lower
regulatory demands may have other consequences for their operations. Banks
should also ensure that they have a well-resourced Risk Management function
that has the expertise and knowledge to flag up any issues sooner rather than
later.
Although most of the issues that led to the

collapse of these banks are not directly relevant
to Hong Kong banks, there are still lessons on risk
management for all financial institutions to bear in
mind.
Key risk lessons

There are still important lessons that all financial institutions can learn from the
issues that affected many of the collapsed banks. Firstly, banks should pay close
attention to their balance sheet and monitor the asset and liability mismatch,
including the interest rate risk and the duration of the balance sheet. Hong Kong
banks should strengthen their Asset-Liability Committee (ALCO) oversight and
responsibilities.
Secondly, banks should be aware that any concentration in types of borrowers

is a red flag, while deposits that rely too much on a specific industry is another
cause for concern.
A third point that banks should consider is the disconnect between accounting
and risk regulation. From an accounting perspective, some assets are measured
at amortised cost, meaning that they are valued at the initial purchase cost, not at
fair value. But when these assets are sold, they can only be sold at market value.
This could end up being a lot lower than the initial cost. Banks should be aware
of this possible disconnect to ensure that they have a realistic view of the market
value of their assets, especially when those bonds could potentially be the source
of liquidity to cover large cash outflow.
While the global banking turmoil seems to have eased, there may be wider
repercussions. There has been a significant move of deposits out of smaller
banks to larger banks. This pattern could affect the property sector as most
commercial real estate loans in the US are held by medium and small banks. If a
significant number of customers move their deposits, this could potentially trigger
a crisis in commercial real estate loans, and in turn lower the price of commercial
real estate.
Sophisticated High-Net-
Worth Investors
New proposal to streamline selling processes and
clarify guidance aims to boost the wealth management
sector
The growing number of high-net-worth individuals across Asia means that wealth
management services are increasingly in demand. Banks in Hong Kong are ideally
placed to offer these clients the expertise they need, but they need to have the
Angela Wong right products on offer, supported by a sales process that ensures clients are
Director, able to easily and efficiently invest in the products available while providing an
appropriate level of investor protection.
Governance, Risk and
Compliance Services, The availability of a broad range of investment products, including relatively
Hong Kong sophisticated complex products, is a key part of Hong Kong’s attractiveness
KPMG China as a wealth management hub. However, the suitability requirements that has
developed over the last decade in Hong Kong to protect investors who may not
sufficiently understand investment products and their associated risks has been
seen by some in the industry as excessive when servicing sophisticated and
knowledgeable customers.
To ensure that Hong Kong remains competitive in this area, the Hong Kong
Monetary Authority and the Securities and Futures Commission have recently
been engaging the private wealth management industry to review Hong Kong’s
wealth management framework, and have proposed a new Sophisticated
High-Net-Worth Investor (SHNWI) initiative to streamline or waive selected
requirements of the process of product suitability and risk disclosure.
The proposal aims to ensure that the regulators take a balanced approach
regarding the obligations placed on wealth managers when serving sophisticated
high-net-worth investors. In practice, this means a regulatory regime that is
user friendly for customers while still being robust enough to provide investor
protection.
Selling of investment products

The Hong Kong regulators have occasionally received feedback that some
customers have experienced delays in being able to access investment products.
Sometimes, this has been due to the prescriptive product suitability and risk
disclosure processes, which may seem excessive for seasoned investors.
But it is also because some banks have been cautious in making these
judgements. For example, some banks have not made full use of the regulatory
flexibility that is allowed, or they have adopted very conservative risk and
concentration thresholds. Furthermore, some banks have been conducting
additional suitability assessments that are not required.
In this regard, banks are simply being prudent. Their compliance and internal
auditor functions may have adopted more stringent measures to make sure there
are no breaches of regulation. But this has led to a frustrating experience for
some investors, who have had to endure a lengthy investment product selling
process due to the bank’s strict requirements.
At the same time, taking a very conservative suitability approach means that
banks might be missing out on the business opportunities in this dynamic and
growing segment of the market.
New SHNWI initiative

The SHNWI initiative was proposed in response to concerns from some
customers that the selling process was overly long and complex, as well as
requests from the industry for more regulatory guidance. With other jurisdictions
also competing for the investible assets of the region’s ultra-high-net worth
investors, there is a strong incentive for Hong Kong to make sure that the city’s
wealth management framework allows flexibility to enhance customer experience
while providing appropriate investor protection.
The initiative aims to reduce or remove undue delay or obstacles from the selling
process for sophisticated high-net-worth investors by streamlining areas of
product due diligence, suitability assessment and product disclosure, while also
providing proportionate investor protection.
While the SHMWI guidance has not yet been finalised, it is expected that to
qualify as a sophisticated high-net-worth investor, clients must have AUM of
a certain level and must also be able to demonstrate that they have previous
investment knowledge and experience, which can be from work or academic
experience. Those investors that qualify will then be eligible for the streamlined
processes and increased flexibility.
Ultimately, it will be up to the banks to decide if they want to adopt this flexibility.
But it is expected that when the proposal takes effect, banks will be more
confident in supporting the initiative given the clear guidance from the regulators.
This will benefit both banks and customers: investors will enjoy easier access
to the products they are interested in, while banks can conduct more business
while offering a better customer experience.
Other guidelines have been issued by the regulators in the past to help banks
interpret the rules and understand exactly what is allowed in terms of regulatory
flexibility. However, the SHWI initiative should provide greater clarification and
ultimately help to attract more wealth management clients to Hong Kong.
Balancing act
The cycle of regulatory requirements and guidelines around investment products
has been seen before. After the global financial crisis and the related mini-bonds
crisis in 2008 that affected many Hong Kong investors, regulatory measures were
tightened significantly, and the HKMA started issuing regulatory circulars on top
of the SFC requirements. After a decade or so, regulations had eased somewhat,
but banks in Hong Kong have remained relatively cautious.
Regulators have a difficult balancing act in terms of the guidance they provide. If
it is too prescriptive, banks don’t have the leeway to serve their customers well.
But a more flexible environment can lead to overly prudent practice as banks
don’t want to take the risk or possibly misunderstand the regulatory standards.
The SHNWI initiative is therefore a welcome development that should strike a

good balance between continuing to offer investors a high level of protection
while also encouraging banks to make use of the allowed flexibility to provide
prompt and comprehensive services to their sophisticated high-net worth investor
clientele. It will also help Hong Kong to demonstrate its credentials as a hub for
wealth management with an evolving regulatory framework that supports the
development of the industry and is tailored to allow banks to best serve and
protect different types of clients.
The availability of a broad range of investment

products, including relatively sophisticated
complex products, is a key part of Hong Kong’s
attractiveness as a wealth management hub.
Data Analytics Platforms
Banks should ensure that they have the capability

to make use of the new types of data sets that are
emerging as technology evolves
Data analytics platforms are used by banks to rapidly identify and remediate
issues that emerge. They also help to prevent problems from happening in
the first place, by detecting unusual activity that otherwise would have slipped
Chad Olsen through the cracks. Besides helping to protect against risk and fulfilling regulatory
Partner, Head of Forensic Services, requirements, data analysis also gives banks a huge amount of information that
they can use to better serve their customers.
Hong Kong
KPMG China The use of data analytics platforms is usually driven by three main factors. Cost
and efficiency are the first two considerations, as using such platforms generally
provides cheaper and faster analysis. A third factor is regulatory risk – banks need
to ensure that they are not inviting more regulatory risk, so using data platforms
can be safer as they as are focused on specialised areas.
Changing landscape
In terms of their adoption of data analytics platforms, banks in Hong Kong are
doing well compared to global standards. Part of this is due to encouragement
from the HKMA, who have made it a regulatory focus in recent years and have
also been keeping track of adoption and activity.
But while data analytics platforms are not a new development for banks, the
technology changes constantly as new innovations emerge, and banks need to
keep up to date. Banks have become skilled in using traditional and existing data
sets in recent years. However, to really benefit from data analysis they should
also be making use of the new types of data sets that are emerging, to better
understand customer behaviour and to spot any anomalies.
A key challenge currently for banks is ensuring that they are able to use the new
data that is becoming available as a result of the changes in the overall banking
infrastructure and the increasing use of mobile devices for banking by customers.
If they are to take advantage of this wealth of new data, banks will need to have
the right platforms and qualified people in place – whether in-house or by using
third party service providers.
Hong Kong’s new virtual banks have an advantage in some respects when it
comes to data analysis. As these banks are entirely online, their customers’
footprints are therefore entirely digital. This gives the virtual banks a more
complete picture of customer activity, with whole new sets of data points
including IP addresses, location and even biometric footprints. For example, they
can identify if a customer is logging in from a different device than usual.
Traditional banks are also benefitting from these new data sets as their
customers are also increasingly using mobile devices for banking. In addition,
seeing some of the headway that the virtual banks are making in this area has
nudged the bigger banks to adopt some of the new technology. The major banks
in Hong Kong also have the advantage of more data to use from their large
customer base.
Moving forward
As data analytics becomes ever more important for banks, a number of questions
are emerging about how to move forward. One of the key areas for consideration
is the use of outsourcing.
Banks have been using data analytics for some time, but as the landscape
evolves there are good reasons for banks to take a fresh look at how they are
using data analytics platforms and the related staff. Over the years, as the
technology initially developed, banks hired a lot of data scientists and other
experts in areas including cybersecurity and forensics to run their data analytics
platforms. These highly qualified staff members also require high salaries, so
come at a significant cost.
But these earlier types of data science have now become “business-as-usual”
for banks, so they are now asking if their high-salaried staff members need
to continue focusing on these areas. If such types of data analysis can be
outsourced, this will save costs, and allow the banks’ top-level data scientists to
focus on the next generation of technology and innovation.
There are a number of well-established third party vendors in the market that
can provide specialised data analytics platforms that offer a more cost-effective
option.
The second key consideration involving data analytics platforms is around

workforce transformation. Many areas of banking have now become data driven
and analytics focused, so banks are realising that the number and type of staff
that they need in today’s workplace may be quite different, even compared with
only a few years ago.
One of the key benefits of data analytics platforms is that they have removed a
lot of the mundane work for banking staff. Banks therefore do not need so many
employees engaged in low-skilled activity as in the past.
More recently, as the technology has become more sophisticated, data analytics
platforms are increasingly able to carry out some of the more complex analytic
work. This is freeing data scientists to use their expertise to look ahead and focus
on identifying the new analytics development that will help banks strengthen
their resilience and improve their services.
Now that the pandemic restrictions have been removed in Hong Kong, it is a
good opportunity for banks to review their workforce and operations. This should
include the use of data analytics platforms, which can not only improve efficiency
and save costs, but will also free up banking employees to do more meaningful
work.
Financial
highlights
Performance rankings:
• Licensed banks
• Virtual banks
• Restricted licence banks
• Deposit-taking companies
• Foreign bank branches
Performance rankings
Licensed banks
Ranking Total assets HK$ million Ranking Net profit after tax HK$ million Ranking Cost/income ratio
Hongkong And Shanghai Banking Hongkong And Shanghai Banking Bank of Communications (Hong
1. 10,324,152 1. 82,104 1. 26.8%
Corporation Limited (The) Corporation Limited (The) Kong) Limited
2. Bank of China (Hong Kong) Limited 3,491,124 2. Bank of China (Hong Kong) Limited 29,587 2. Bank of China (Hong Kong) Limited 28.9%
Standard Chartered Bank (Hong Industrial And Commercial Bank of
3. 2,478,009 3. Hang Seng Bank, Limited 10,151 3. 30.4%
Kong) Limited China (Asia) Limited
Standard Chartered Bank (Hong Kong)
4. Hang Seng Bank, Limited 1,893,805 4. 6,298 4. Shanghai Commercial Bank Limited 34.7%
Limited
Industrial And Commercial Bank of Industrial And Commercial Bank of
5. 924,820 5. 6,023 5. Nanyang Commercial Bank, Limited 36.2%
China (Asia) Limited China (Asia) Limited
6. Bank of East Asia, Limited (The) 882,825 6. DBS Bank (Hong Kong) Limited 5,554 6. CMB Wing Lung Bank Limited 38.0%
7. Nanyang Commercial Bank, Limited 541,677 7. Bank of East Asia, Limited (The) 4,378 7. Chong Hing Bank Limited 38.6%
China Construction Bank (Asia)
8. DBS Bank (Hong Kong) Limited 475,875 8. Nanyang Commercial Bank, Limited 3,908 8. 39.0%
Corporation Limited
Bank of Communications (Hong China Construction Bank (Asia)
9. 467,012 9. 3,089 9. Hang Seng Bank, Limited 43.5%
Kong) Limited Corporation Limited
China Construction Bank (Asia)
10. 460,448 10. CMB Wing Lung Bank Limited 2,958 10. DBS Bank (Hong Kong) Limited 44.1%
Corporation Limited
Restricted licence banks
Bank of Shanghai (Hong Kong) Kasikornbank Public Company
1. 29,023 1. Citicorp International Limited 1,760 1. 7.3%
Limited Limited
Banc of America Securities Asia J.P. Morgan Securities (Asia Pacific)
2. 26,300 2. 1,392 2. KDB Asia Limited 18.0%
Limited Limited
Kasikornbank Public Company Banc of America Securities Asia
3. 22,634 3. KDB Asia Limited 326 3. 22.2%
Limited Limited
Siam Commercial Bank Public
4. KDB Asia Limited 22,560 4. Kasikornbank Public Company Limited 260 4. 46.7%
Company Limited (The)
J.P. Morgan Securities (Asia Pacific) Bank of Shanghai (Hong Kong)
5. 19,221 5. Banc of America Securities Asia Limited 208 5. 51.6%
Limited Limited
Siam Commercial Bank Public
6. 10,326 6. ORIX Asia Limited 79 6. Citicorp International Limited 57.0%
Company Limited (The)
Allied Banking Corporation (Hong
7. Korea Development Bank (The) 8,322 7. Habib Bank Zurich (Hong Kong) Limited 39 7. 59.0%
Kong) Limited
Allied Banking Corporation (Hong Kong) Habib Bank Zurich (Hong Kong)
8. Bank of China International Limited 6,405 8. 21 8. 64.9%
Limited Limited
9. Citicorp International Limited 4,376 9. Goldman Sachs Asia Bank Limited 18 9. Goldman Sachs Asia Bank Limited 68.2%
Siam Commercial Bank Public Company
10. ORIX Asia Limited 4,068 10. 15 10. ORIX Asia Limited 71.0%
Limited (The)
Deposit-taking companies
1. Public Finance Limited 6,342 1. Public Finance Limited 173 1. BCOM Finance (Hong Kong) Limited 12.5%
2. Kexim Asia Limited 5,597 2. Woori Global Markets Asia Limited 61 2. Woori Global Markets Asia Limited 32.0%
3. Woori Global Markets Asia Limited 3,674 3. Kexim Asia Limited 36 3. Chong Hing Finance Limited 38.0%
4. KEB Hana Global Finance Limited 1,326 4. KEB Hana Global Finance Limited 28 4. Kexim Asia Limited 38.6%
5. Vietnam Finance Company Limited 520 5. BPI International Finance Limited 6 5. KEB Hana Global Finance Limited 45.0%
6. BPI International Finance Limited 398 6. BCOM Finance (Hong Kong) Limited 6 6. Public Finance Limited 56.3%
Commonwealth Finance Corporation Commonwealth Finance Corporation
7. Corporate Finance (D.T.C.) Limited 328 7. 2 7. 82.4%
Limited Limited
8. BCOM Finance (Hong Kong) Limited 278 8. Vietnam Finance Company Limited 1 8. Corporate Finance (D.T.C.) Limited 85.7%
Commonwealth Finance Corporation
9. 258 9. Corporate Finance (D.T.C.) Limited 1 9. BPI International Finance Limited 88.3%
Limited
10. Fubon Credit (Hong Kong) Limited 97 10. Chong Hing Finance Limited - 10. Vietnam Finance Company Limited 88.9%
Foreign bank branches

1. Agricultural Bank of China Limited 591,658 1. UBS AG 5,718 1. Woori Bank 9.4%
2. Citibank, N.A. 590,089 2. Citibank, N.A. 4,038 2. Agricultural Bank of China Limited 10.1%
3. Mizuho Bank, Ltd. 444,774 3. Agricultural Bank of China Limited 3,643 3. First Commercial Bank, Ltd. 12.8%
4. Bank of Communications Co., Ltd. 353,564 4. China Development Bank 2,782 4. China Merchants Bank Co., Ltd. 13.2%
5. MUFG Bank, Ltd. 351,436 5. DBS Bank Ltd. 2,709 5. KEB Hana Bank 13.6%
6. BNP Paribas 315,015 6. China Merchants Bank Co., Ltd. 2,086 6. Kookmin Bank 13.9%
JPMorgan Chase Bank, National
7. 302,879 7. United Overseas Bank Ltd. 2,059 7. Hua Nan Commercial Bank, Ltd. 14.4%
Association
Sumitomo Mitsui Banking
8. 302,801 8. China Minsheng Banking Corp., Ltd. 1,576 8. China Development Bank 14.6%
Corporation
Mega International Commercial Bank
9. DBS Bank Ltd. 302,115 9. Industrial Bank Co., Ltd. 1,503 9. 15.2%
Co., Ltd.
10. China Development Bank 266,127 10. Bank of America, National Association 1,439 10. Industrial Bank Co., Ltd. 17.4%
Licensed banks
Ranking Return on equity Ranking Growth in assets Ranking Growth in net profit after tax
1. DBS Bank (Hong Kong) Limited 12.8% 1. Chong Hing Bank Limited 10.0% 1. Tai Yau Bank, Limited 106.7%
2. Bank of China (Hong Kong) Limited 9.6% 2. Fubon Bank (Hong Kong) Limited 9.7% 2. Fubon Bank (Hong Kong) Limited 40.7%
Hongkong And Shanghai Banking
3. 8.8% 3. Citibank (Hong Kong) Limited 9.5% 3. Bank of China (Hong Kong) Limited 22.1%
Corporation Limited (The)
4. Morgan Stanley Bank Asia Limited 7.6% 4. China CITIC Bank International Limited 8.2% 4. Nanyang Commercial Bank, Limited 21.0%
5. Shanghai Commercial Bank Limited 7.6% 5. DBS Bank (Hong Kong) Limited 6.3% 5. DBS Bank (Hong Kong) Limited 16.9%
6. Nanyang Commercial Bank, Limited 6.1% 6. OCBC Wing Hang Bank Limited 4.3% 6. 13.2%
7. CMB Wing Lung Bank Limited 5.6% 7. 4.2% 7. OCBC Wing Hang Bank Limited 6.9%
Industrial And Commercial Bank of
8. Hang Seng Bank, Limited 5.5% 8. Hang Seng Bank, Limited 4.0% 8. 6.3%
China (Asia) Limited
9. OCBC Wing Hang Bank Limited 5.5% 9. Chiyu Banking Corporation Limited 2.6% 9. China CITIC Bank International Limited 5.9%
10. Dah Sing Bank, Limited 5.1% 10. Wing Lung Bank Limited 2.2% 10. Wing Lung Bank Limited -2.4%
Restricted licence banks

Ranking Return on equity Ranking Growth in assets Ranking Growth in net profit after tax
Banc of America Securities Asia
1. Korea Development Bank (The) 95.8% 1. 175.4% 1. Banc of America Securities Asia Limited 407.3%
Limited
2. Citicorp International Limited 36.6% 2. Korea Development Bank (The) 100.0% 2. ORIX Asia Limited 216.0%
J.P. Morgan Securities (Asia Pacific)
3. 10.6% 3. Goldman Sachs Asia Bank Limited 1.5% 3. Goldman Sachs Asia Bank Limited 157.1%
Limited
4. KDB Asia Limited 8.6% 4. Kasikornbank Public Company Limited 0.6% 4. Habib Bank Zurich (Hong Kong) Limited 25.8%
Habib Bank Zurich (Hong Kong)
5. 6.7% 5. Habib Bank Zurich (Hong Kong) Limited -0.7% 5. KDB Asia Limited 12.0%
Limited
Kasikornbank Public Company Allied Banking Corporation (Hong Kong)
6. 5.9% 6. -1.4% 6. Kasikornbank Public Company Limited 8.3%
Limited Limited
Banc of America Securities Asia J.P. Morgan Securities (Asia Pacific) Allied Banking Corporation (Hong Kong)
7. 4.8% 7. -1.6% 7. 0.4%
Limited Limited Limited
Allied Banking Corporation (Hong
8. 3.6% 8. ORIX Asia Limited -10.4% 8. Citicorp International Limited -4.5%
Kong) Limited
9. ORIX Asia Limited 3.5% 9. KDB Asia Limited -13.3% 9. -28.6%
Limited (The)
10. Goldman Sachs Asia Bank Limited 1.9% 10. Bank of Shanghai (Hong Kong) Limited -17.9% 10. -46.3%
Limited
Virtual banks
Ranking Total assets HK$ million Ranking Profit before tax HK$ million Ranking Total deposits from customers HK$ million
Ping An OneConnect Bank (Hong Kong)
1. ZA Bank Limited 11,608 1. (157) 1. ZA Bank Limited 9,172
Limited
2. Mox Bank Limited 10,414 2. Airstar Bank Limited (200) 2. Mox Bank Limited 8,365
3. Fusion Bank Limited 4,371 3. Ant Bank (Hong Kong) Limited (203) 3. Fusion Bank Limited 3,437
4. Livi Bank Limited 4,098 4. Welab Bank Limited (458) 4. Livi Bank Limited 3,098
Ping An OneConnect Bank (Hong Ping An OneConnect Bank (Hong Kong)

5. 3,193 5. ZA Bank Limited (499) 5. 2,147
Kong) Limited Limited
6. Welab Bank Limited 2,689 6. Fusion Bank Limited (533) 6. Welab Bank Limited 1,978
7. Airstar Bank Limited 2,660 7. Mox Bank Limited (631) 7. Airstar Bank Limited 1,799
8. Ant Bank (Hong Kong) Limited 1,443 8. Livi Bank Limited (715) 8. Ant Bank (Hong Kong) Limited 354
Foreign bank branches

Ranking Growth in assets Ranking Growth in net profit after tax
1. NongHyup Bank 14878.6% 1. Cathay United Bank Company, Limited 3000.0%
2. Bank of Dongguan Co., Ltd. 536.6% 2. Sumitomo Mitsui Trust Bank, Limited 1877.8%
3. Banque Pictet & Cie Sa 279.5% 3. NongHyup Bank 1300.0%
4. Barclays Bank PLC 242.6% 4. First Commercial Bank, Ltd. 867.9%

Canadian Imperial Bank of
5. 180.6% 5. Malayan Banking Berhad 820.3%
Commerce
6. Hua Xia Bank Co., Limited 66.5% 6. MUFG Bank, Ltd. 743.5%
7. China Guangfa Bank Co., Ltd. 65.3% 7. Taiwan Business Bank 700.0%
8. Erste Group Bank AG 48.2% 8. East West Bank 652.0%

Banco Bilbao Vizcaya Argentaria Mitsubishi UFJ Trust And Banking
9. 43.1% 9. 514.3%
S.A. Corporation
10. Crédit Industriel et Commercial 42.2% 10. Bank of America, National Association 480.7%
Licensed banks – Financial highlights
Income statement
HK$ million Year ended Net Non-interest Operating Operating Change in Other
interest income expenses profit before expected items
income impairment credit loss
charges against
customer
advances
1 Bank of China (Hong Kong) Limited 31-Dec-22 34,790 20,529 15,967 39,352 2,545 1,291
2 Bank of Communications (Hong Kong) Limited 31-Dec-22 5,494 876 1,705 4,665 1,825 (39)
3 Bank of East Asia, Limited (The) 31-Dec-22 13,508 4,446 9,224 8,730 5,416 (1,627)
4 China CITIC Bank International Limited 31-Dec-22 6,896 1,567 4,099 4,364 1,900 (85)
China Construction Bank (Asia) Corporation

5 31-Dec-22 5,760 2,123 3,077 4,806 1,313 (189)
Limited
6 Chiyu Banking Corporation Limited 31-Dec-22 1,803 1,134 1,334 1,603 554 4
7 Chong Hing Bank Limited 31-Dec-22 3,984 1,122 1,973 3,133 2,030 (162)
8 Citibank (Hong Kong) Limited 31-Dec-22 3,101 3,545 5,221 1,425 137 7
9 CMB Wing Lung Bank Limited 31-Dec-22 5,611 2,037 2,907 4,741 1,332 (60)
10 Dah Sing Bank, Limited 31-Dec-22 4,372 2,444 3,026 3,790 784 1,056
11 DBS Bank (Hong Kong) Limited 31-Dec-22 8,272 4,346 5,570 7,048 370 20
12 Fubon Bank (Hong Kong) Limited 31-Dec-22 1,607 368 1,046 929 288 (10)
13 Hang Seng Bank, Limited 31-Dec-22 28,981 4,991 14,778 19,194 7,669 86
Hongkong And Shanghai Banking Corporation
14 31-Dec-22 126,852 78,840 110,508 95,184 15,503 (17,930)
Limited (The)
Industrial And Commercial Bank of China (Asia)
15 31-Dec-22 9,735 2,758 3,798 8,695 1,169 255
Limited
16 Morgan Stanley Bank Asia Limited 31-Dec-22 711 2,833 2,605 939 - -
17 Nanyang Commercial Bank, Limited 31-Dec-22 7,172 2,478 3,490 6,160 1,535 181
18 OCBC Wing Hang Bank Limited 31-Dec-22 5,329 2,010 3,846 3,493 784 (234)
19 Public Bank (Hong Kong) Limited 31-Dec-22 1,156 208 830 534 131 -
20 Shanghai Commercial Bank Limited 31-Dec-22 3,887 1,265 1,790 3,362 271 (111)
21 Standard Chartered Bank (Hong Kong) Limited 31-Dec-22 27,169 22,430 32,513 17,086 6,733 1,532
22 Tai Sang Bank Limited 31-Dec-22 10 19 34 (5) - 1
23 Tai Yau Bank, Limited 31-Dec-22 17 - 16 1 - -
TOTALN1 2022 277,236 157,378 214,579 220,035 44,620 (16,100)
Total excluding HSBCN2 2022 179,365 83,529 118,849 144,045 36,786 1,916
Total excluding BOCHK & HSBCN2 2022 144,575 63,000 102,882 104,693 34,241 625
* This is Liquidity Coverage Ratio.
# This is Liquidity Maintenance Ratio.
N1 This does not include Hang Seng Bank, as it is already included in the results of The Hongkong and Shanghai Banking Corporation.
N2 This include Hang Seng Bank.
N3 ROA is calculated as net profit after tax divided by average total assets.
N4 ROE is calculated as net profit after tax divided by average total equity.

Financial highlights
Size and strength measures
Profit Net profit Total Gross Expected Total Total Capital Liquidity
before tax after tax assets advances to credit loss deposits from equity adequacy ratio
customers allowance customers ratio
against
customer
advances
35,516 29,587 3,491,124 1,656,430 11,499 2,379,520 310,327 21.6% 178.5%*
2,879 2,407 467,012 210,754 2,706 338,218 50,550 18.6% 145.1%*
4,941 4,378 882,825 549,543 6,620 648,093 106,346 20.1% 197.7%*
2,549 2,253 451,651 246,798 1,378 340,488 54,694 18.6% 209.0%*
3,682 3,089 460,448 274,105 3,710 352,617 72,515 20.9% 130.9%*
1,045 903 181,871 87,961 473 140,835 17,863 16.3% 205.7%*
1,265 1,143 280,766 166,704 2,788 223,488 35,943 17.6% 54.2%#
1,281 1,116 341,834 120,619 274 255,134 24,768 24.7% 69.6%#
3,469 2,958 397,494 203,921 2,172 301,621 52,705 18.5% 160.3%*
1,950 1,589 252,916 140,197 1,642 199,803 31,007 19.3% 57.3%#
6,658 5,554 475,875 279,660 3,464 394,360 43,443 18.4% 158.2%*
651 543 129,598 65,442 478 97,923 15,252 17.8% 78.2%#
11,439 10,151 1,893,805 944,728 13,394 1,249,486 183,961 18.1% 275.3%*
97,611 82,104 10,324,152 3,745,113 39,964 6,113,709 941,263 18.8% 157.8%*
7,271 6,023 924,820 460,353 8,153 565,839 143,562 22.4% 176.5%*
939 806 59,546 25,112 - 45,691 11,964 66.0% 72.0%#
4,444 3,908 541,677 294,376 4,065 365,462 62,172 17.5% 139.4%*
2,943 2,540 339,483 203,009 991 247,210 46,066 19.0% 42.9%#
403 331 38,252 24,407 202 30,464 6,659 25.0% 53.6%#
3,202 2,586 223,334 96,722 726 176,502 33,458 22.0% 52.8%#
8,821 6,298 2,478,009 1,200,887 11,141 1,705,789 185,682 20.7% 163.0%*
(6) (5) 1,050 287 - 266 713 77.5% 78.2%#
1 1 1,910 - - 1,107 797 227.1% 107.4%#
191,515 160,112 22,745,647 10,052,400 102,446 14,924,139 2,247,749 - -
105,343 88,159 14,315,300 7,252,015 75,876 10,059,916 1,490,447 - -
69,827 58,572 10,824,176 5,595,585 64,377 7,680,396 1,180,120 - -
Key ratios
Performance measures
HK$ million Year ended Net customer Net interest Non-interest Cost/ ROAN3 ROEN4
loan/deposit income/ income/total income
ratio average operating ratio
total income
assets
1 Bank of China (Hong Kong) Limited 31-Dec-22 69.1% 1.0% 37.1% 28.9% 0.9% 9.6%
2 Bank of Communications (Hong Kong) Limited 31-Dec-22 61.5% 1.2% 13.8% 26.8% 0.5% 4.8%
3 Bank of East Asia, Limited (The) 31-Dec-22 83.8% 1.5% 24.8% 51.4% 0.5% 3.9%
4 China CITIC Bank International Limited 31-Dec-22 72.1% 1.6% 18.5% 48.4% 0.5% 4.3%
China Construction Bank (Asia) Corporation
5 31-Dec-22 76.7% 1.2% 26.9% 39.0% 0.6% 4.1%
Limited
6 Chiyu Banking Corporation Limited 31-Dec-22 62.1% 1.0% 38.6% 45.4% 0.5% 4.9%
7 Chong Hing Bank Limited 31-Dec-22 73.3% 1.5% 22.0% 38.6% 0.4% 3.2%
8 Citibank (Hong Kong) Limited 31-Dec-22 47.2% 0.9% 53.3% 78.6% 0.3% 4.5%
9 CMB Wing Lung Bank Limited 31-Dec-22 66.9% 1.4% 26.6% 38.0% 0.8% 5.6%
10 Dah Sing Bank, Limited 31-Dec-22 69.3% 1.7% 35.9% 44.4% 0.6% 5.1%
11 DBS Bank (Hong Kong) Limited 31-Dec-22 70.0% 1.8% 34.4% 44.1% 1.2% 12.8%
12 Fubon Bank (Hong Kong) Limited 31-Dec-22 66.3% 1.3% 18.6% 53.0% 0.4% 3.6%
13 Hang Seng Bank, Limited 31-Dec-22 74.5% 1.6% 14.7% 43.5% 0.5% 5.5%
Hongkong And Shanghai Banking Corporation
14 31-Dec-22 60.6% 1.3% 38.3% 53.7% 0.8% 8.8%
Limited (The)
Industrial And Commercial Bank of China (Asia)
15 31-Dec-22 79.9% 1.1% 22.1% 30.4% 0.7% 4.2%
Limited
16 Morgan Stanley Bank Asia Limited 31-Dec-22 55.0% 1.0% 79.9% 73.5% 1.2% 7.6%
17 Nanyang Commercial Bank, Limited 31-Dec-22 79.4% 1.3% 25.7% 36.2% 0.7% 6.1%
18 OCBC Wing Hang Bank Limited 31-Dec-22 81.7% 1.6% 27.4% 52.4% 0.8% 5.5%
19 Public Bank (Hong Kong) Limited 31-Dec-22 79.5% 3.0% 15.2% 60.9% 0.8% 5.0%
20 Shanghai Commercial Bank Limited 31-Dec-22 54.4% 1.7% 24.6% 34.7% 1.1% 7.6%
21 Standard Chartered Bank (Hong Kong) Limited 31-Dec-22 69.7% 1.1% 45.2% 65.6% 0.3% 3.4%
22 Tai Sang Bank Limited 31-Dec-22 107.9% 1.0% 65.5% 117.2% -0.5% -0.7%
23 Tai Yau Bank, Limited 31-Dec-22 0.0% 0.9% 0.0% 94.1% 0.1% 0.1%
TOTALN1 2022 66.7% 1.2% 36.2% 49.4% 0.7% 7.1%
Total excluding HSBCN2 2022 71.3% 1.3% 31.8% 45.2% 0.6% 5.9%
Total excluding BOCHK & HSBCN2 2022 72.0% 1.3% 30.4% 49.6% 0.5% 4.9%
* This is Liquidity Coverage Ratio.

# This is Liquidity Maintenance Ratio.
N1 This does not include Hang Seng Bank, as it is already included in the results of The Hongkong and Shanghai Banking Corporation.
N2 This include Hang Seng Bank.
N3 ROA is calculated as net profit after tax divided by average total assets.
N4 ROE is calculated as net profit after tax divided by average total equity.
Loan asset quality

Impaired advances (stage 3) Advances (stage 2)
Gross Gross Stage 3 expected Stage 3 expected Collateral for Gross Expected Stage 2 expected Risk-weighted
impaired impaired credit loss credit loss impaired advances in credit loss credit loss assets
advances advances/ allowance allowance as a advances Stage 2 allowance allowances (“RWA”)
Advances to made against percentage of made against as a percentage
customers impaired gross impaired Stage 2 of gross stage 2
advances advances advances advances
8,724 0.5% 4,992 57.2% 4,440 40,164 2,511 6.3% 1,309,536
5,801 2.8% 2,012 34.7% 62 13,379 140 1.0% 327,802
13,145 2.4% 4,518 34.4% 5,901 27,561 1,018 3.7% 514,873
4,167 1.7% 253 6.1% 2,502 9,805 423 4.3% 314,125
2,861 1.0% 2,347 82.0% 63 11,219 571 5.1% 348,727
1,210 1.4% 95 7.9% 1,500 1,764 25 1.4% 108,876
4,479 2.7% 2,068 46.2% 919 5,567 211 3.8% 206,510
42 0.0% 27 64.3% 24 165 111 67.3% 100,655
2,688 1.3% 1,449 53.9% 601 27,580 390 1.4% 271,583
2,539 1.8% 887 34.9% 1,056 10,375 343 3.3% 172,320
3,484 1.2% 1,459 41.9% 1,227 14,376 845 5.9% 262,344
301 0.5% 178 59.1% 109 3,193 67 2.1% 80,879
23,911 2.5% 7,802 32.6% 11,472 160,874 4,818 3.0% 764,726
62,763 1.7% 25,818 41.1% 25,381 462,083 11,200 2.4% 3,222,168
3,922 0.9% 2,283 58.2% 9,588 19,374 620 3.2% 645,838
- 0.0% - N/A - - - N/A 17,698
3,497 1.2% 2,170 62.1% 516 7,423 523 7.0% 372,096
2,843 1.4% 267 9.4% 2,620 36,249 380 1.0% 226,569
309 1.3% 85 27.5% 337 773 32 4.1% 25,065
875 0.9% 153 17.5% 1,466 7,140 411 5.8% 161,184
12,825 1.1% 6,861 53.5% 5,336 41,773 2,014 4.8% 846,074
- 0.0% - N/A - - - N/A 692
- 0.0% - N/A - - - N/A 351
136,475 1.4% 57,922 42.4% 63,648 739,963 21,835 3.0% 9,535,965
97,623 1.3% 39,906 40.9% 49,739 438,754 15,453 3.5% 7,078,523
88,899 1.6% 34,914 39.3% 45,299 398,590 12,942 3.2% 5,768,987
Restricted licence banks – Financial highlights
Income statement
charges against
customer
advances
Allied Banking Corporation (Hong Kong)
1 31-Dec-22 52 9 36 25 - -
Limited
2 Banc of America Securities Asia Limited 31-Dec-22 (274) 626 78 274 - -
3 Bank of China International Limited 31-Dec-22 89 144 223 10 - -
4 Bank of Shanghai (Hong Kong) Limited 31-Dec-22 516 (68) 231 217 408 449
5 Citicorp International Limited 31-Dec-22 11 4,920 2,810 2,121 - -
6 Goldman Sachs Asia Bank Limited 31-Dec-22 21 45 45 21 - -
7 Habib Bank Zurich (Hong Kong) Limited 31-Dec-22 82 49 85 46 (1) -

8 31-Dec-22 251 8,617 7,151 1,717 - -
Limited
9 Kasikornbank Public Company Limited 31-Dec-22 244 42 21 265 (5) 2
10 KDB Asia Limited 31-Dec-22 268 232 90 410 31 (2)
11 Korea Development Bank (The) 31-Dec-22 6 3 24 (15) 8 -
12 ORIX Asia Limited 31-Mar-22 151 90 171 70 (23) (1)

13 31-Dec-22 28 2 14 16 - -
Limited (The)
TOTAL 2022 1,445 14,711 10,979 5,177 418 448
# Note that all are Liquidity Maintenance Ratio

Profit Net profit Total Gross Expected Total Total Capital Liquidity
before tax after tax assets advances credit loss deposits equity adequacy ratio#
to allowance from ratio
customers against customers
customer
advances
25 21 1,615 921 - 985 594 41.0% 132.3%
274 208 26,300 - - - 4,468 63.5% 12174.9%
10 10 6,405 2,952 1 4,276 1,793 70.0% 66.7%
(640) (601) 29,023 16,271 706 10,561 4,171 18.4% 129.2%
2,121 1,760 4,376 - - - 2,821 29.4% 1371.1%
21 18 1,111 - - 8 944 180.0% 160.0%
47 39 2,955 1,847 12 1,590 591 30.8% 80.1%
1,717 1,392 19,221 - - - 13,789 54.3% 371.6%
268 260 22,634 959 10 - 4,354 18.8% 4844.0%
381 326 22,560 16,055 153 8 3,892 18.4% 68.6%
(23) (23) 8,322 4,549 7 - (24) 13.4% 293.7%
94 79 4,068 3,630 43 590 2,279 57.6% 100.2%
16 15 10,326 305 2 621 - 16.6% 69.0%
4,311 3,504 158,916 47,489 934 18,639 39,672 - -
Key ratios
HK$ million Year ended Net customer Net interest Non-interest Cost/ ROA ROE
loan/deposit income/ income/total income ratio
ratio average total operating
assets income
Allied Banking Corporation (Hong Kong)

1 31-Dec-22 93.5% 3.2% 14.8% 59.0% 1.3% 3.6%
Limited
2 Banc of America Securities Asia Limited 31-Dec-22 N/A -1.5% 177.8% 22.2% 1.2% 4.8%
3 Bank of China International Limited 31-Dec-22 69.0% 1.2% 61.8% 95.7% 0.1% 0.6%
4 Bank of Shanghai (Hong Kong) Limited 31-Dec-22 147.4% 1.6% -15.2% 51.6% -1.9% -13.3%
5 Citicorp International Limited 31-Dec-22 N/A 0.2% 99.8% 57.0% 28.9% 36.6%
6 Goldman Sachs Asia Bank Limited 31-Dec-22 0.0% 1.9% 68.2% 68.2% 1.6% 1.9%
7 Habib Bank Zurich (Hong Kong) Limited 31-Dec-22 115.4% 2.8% 37.4% 64.9% 1.3% 6.7%

8 31-Dec-22 N/A 1.3% 97.2% 80.6% 7.2% 10.6%
Limited
9 Kasikornbank Public Company Limited 31-Dec-22 N/A 1.1% 14.7% 7.3% 1.2% 5.9%
10 KDB Asia Limited 31-Dec-22 198775.0% 1.1% 46.4% 18.0% 1.3% 8.6%
11 Korea Development Bank (The) 31-Dec-22 N/A 0.1% 33.3% 266.7% -0.3% 95.8%
12 ORIX Asia Limited 31-Mar-22 608.0% 3.5% 37.3% 71.0% 1.8% 3.5%

13 31-Dec-22 48.8% 0.2% 6.7% 46.7% 0.1% N/A
Limited (The)
TOTAL 2022 249.8% 0.9% 91.1% 68.0% 2.2% 8.5%
Loan asset quality

Impaired advances / Stage 3 advances Advances (stage 2)
Gross impaired Gross impaired Stage 3 expected Stage 3 expected Collateral Gross advances Expected credit Stage 2 expected
advances advances/ credit loss credit loss for impaired in Stage 2 loss allowance credit loss
Advances to allowance made allowance as a advances made against allowances as
customers against impaired percentage of Stage 2 advances a percentage
advances gross impaired of gross stage 2
advances advances
1 0.1% - 0.0% - 1 - 0.0%
- N/A - N/A - - - N/A
1 0.0% 1 100.0% - - - N/A
894 5.5% 505 56.5% - 177 20 11.3%
- N/A - N/A - - - N/A
- N/A - N/A - - - N/A
- 0.0% - N/A - 54 9 16.7%
- N/A - N/A - - - N/A
- 0.0% - N/A - - - N/A
107 0.7% 102 95.3% - 51 18 35.3%
- 0.0% - N/A - - - N/A
37 1.0% 23 62.2% 22 321 10 3.1%
- 0.0% - N/A - - - N/A
1,040 2.2% 631 60.7% 22 604 57 9.4%
Deposit-taking companies – Financial highlights
Income statement
charges against
customer
advances
1 BCOM Finance (Hong Kong) Limited 31-Dec-22 - 8 1 7 - -
2 BPI International Finance Limited 31-Dec-22 6 54 53 7 - -
Chau's Brothers Finance Company

3 31-Dec-22 4 1 5 - - -
Limited
4 Chong Hing Finance Limited 31-Dec-22 - - - - - -

5 31-Dec-22 11 6 14 3 1 -
Limited
6 Corporate Finance (D.T.C.) Limited 31-Dec-22 7 - 6 1 - -
7 Fubon Credit (Hong Kong) Limited 31-Dec-22 - - 7 (7) - -
8 KEB Hana Global Finance Limited 31-Dec-22 28 32 27 33 - -
9 Kexim Asia Limited 31-Dec-22 65 5 27 43 - -
10 Public Finance Limited 31-Dec-22 611 115 409 317 110 -
11 Vietnam Finance Company Limited 31-Dec-22 9 - 8 1 - -
12 Woori Global Markets Asia Limited 31-Dec-22 68 35 33 70 (1) -
Total 2022 809 256 590 475 110 -

Source: Extracted from individual companies’ financial and public statements
Profit Net profit Total Risk-weighted Gross Expected Total Total Capital Liquidity
before tax after tax assets assets advances to credit loss deposits equity adequacy ratio#
(“RWA”) customers allowance from ratio
against customers
customer
advances
7 6 278 N/A - - 1 275 N/A N/A
7 6 398 294 106 - 219 152 50.5% 658.6%
- - 71 N/A 56 1 1 69 107.6% 160.5%
- - 47 N/A - - - 47 N/A N/A
2 2 258 N/A 146 1 119 115 77.1% 173.5%
1 1 328 N/A 177 - 221 104 N/A N/A
(7) (7) 97 N/A - - - 84 N/A N/A
33 28 1,326 662 1,224 1 - 583 87.8% 47700.0%
43 36 5,597 5,098 2,466 6 - 1,259 26.7% 167.7%
207 173 6,342 4,810 5,090 132 4,294 1,647 28.9% 74.3%
1 1 520 N/A 3 - - 144 N/A N/A
71 61 3,674 3,638 1,964 25 - 1,038 28.6% 248.6%
365 307 18,936 14,502 11,232 166 4,855 5,517
Key ratios
HK$ million Year ended Net customer Net interest Non-interest Cost/ ROA ROE
loan/deposit income/ income/ income
ratio average total total ratio
assets operating
income
1 BCOM Finance (Hong Kong) Limited 31-Dec-22 0.0% 0.0% 100.0% 12.5% 2.2% 2.2%
2 BPI International Finance Limited 31-Dec-22 48.4% 1.6% 90.0% 88.3% 1.6% 4.0%
Chau's Brothers Finance Company

3 31-Dec-22 5500.0% 5.6% 20.0% 100.0% 0.0% 0.0%
Limited
4 Chong Hing Finance Limited 31-Dec-22 N/A 1.2% 0.0% 38.0% 0.6% 0.6%

5 31-Dec-22 121.8% 4.0% 35.3% 82.4% 0.7% 1.8%
Limited
6 Corporate Finance (D.T.C.) Limited 31-Dec-22 80.1% 2.1% 0.0% 85.7% 0.3% 1.0%
7 Fubon Credit (Hong Kong) Limited 31-Dec-22 N/A 0.0% 111.9% 11593.2% -7.3% -8.0%
8 KEB Hana Global Finance Limited 31-Dec-22 N/A 2.0% 53.3% 45.0% 2.0% 4.9%
9 Kexim Asia Limited 31-Dec-22 N/A 1.2% 7.1% 38.6% 0.7% 2.8%
10 Public Finance Limited 31-Dec-22 115.5% 9.4% 15.8% 56.3% 2.7% 10.5%
11 Vietnam Finance Company Limited 31-Dec-22 1041.1% 1.3% 0.0% 88.9% 0.1% 0.7%
12 Woori Global Markets Asia Limited 31-Dec-22 N/A 1.8% 34.0% 32.0% 1.6% 6.0%
Total 2022 227.9% 4.2% 24.0% 55.4% 1.6% 5.6%
Loan asset quality

Impaired advances (stage 3) Advances (stage 2)
Gross Gross impaired Stage 3 expected Stage 3 expected Collateral Gross advances Expected credit loss Stage 2 expected
impaired advances/ credit loss credit loss for impaired in Stage 2 allowance made credit loss
advances Advances to allowance made allowance as a advances against Stage 2 allowances as a
customers against impaired percentage of advances percentage of
advances gross impaired gross stage 2
advances advances
- N/A - N/A - - - N/A
- 0.0% - N/A - - - N/A
1 1.8% 1 100.0% N/A - - N/A
- N/A - N/A - - - N/A
- 0.0% - N/A - - - N/A
- 0.0% - N/A - - - N/A
- 0.0% - N/A - - - N/A
- 0.0% - N/A - 8 - 0.0%
- 0.0% - N/A - - - N/A
73 1.4% 40 54.8% 17 39 22 56.4%
- 0.0% - N/A - - - N/A
60 3.1% 21 35.0% 42 - - N/A
134 1.2% 62 46.3% 59 47 22 46.8%
Foreign bank branches – Financial highlights
Income statement
HK$ million Year ended Net interest Non-interest Operating Operating Change in
income income expenses profit before expected credit
impairment loss against
charges customer
advances
1 Agricultural Bank of China Limited 31-Dec-22 3,979 1,052 506 4,525 125
2 Australia And New Zealand Banking Group Limited 30-Sep-22 903 657 917 643 23
3 Banco Bilbao Vizcaya Argentaria S.A. 31-Dec-22 347 227 294 280 (7)
4 Banco Santander, S.A. 31-Dec-22 262 591 760 93 (3)
5 Bangkok Bank Public Company Limited 31-Dec-22 424 154 167 411 105
6 Bank J. Safra Sarasin AG 31-Dec-22 229 304 528 5 -
7 Bank Julius Baer & Co. Ltd. 31-Dec-22 778 1,863 2,057 584 1
8 Bank of America, National Association 31-Dec-22 1,273 1,554 1,548 1,279 (488)
9 Bank of China Limited 31-Dec-22 130 109 130 109 -
10 Bank of Communications Co., Ltd. 31-Dec-22 2,295 854 1,470 1,679 908
11 Bank of Dongguan Co., Ltd. 31-Dec-22 106 11 111 6 -
12 Bank of India 31-Mar-22 57 167 41 183 6
13 Bank of Montreal 31-Oct-22 32 307 232 107 -
14 Bank of New York Mellon (The) 31-Dec-22 372 566 565 373 -
15 Bank of Nova Scotia (The) 31-Oct-22 212 81 257 36 -
16 Bank of Singapore Limited 31-Dec-22 132 872 719 285 -
17 Bank of Taiwan 31-Dec-22 146 5 37 114 (42)
18 Bank Sinopac 31-Dec-22 532 240 190 582 80
19 Banque Pictet & Cie Sa 31-Dec-22 76 220 481 (185) -
20 Barclays Bank PLC 31-Dec-22 39 2,813 2,029 823 6
21 BDO Unibank, Inc. 31-Dec-22 129 24 35 118 1
22 BNP Paribas 31-Dec-22 2,880 3,960 5,036 1,804 595
23 CA Indosuez (Switzerland) SA 31-Dec-22 56 283 344 (5) -
24 Canadian Imperial Bank of Commerce 31-Oct-22 82 431 217 296 2
25 Cathay Bank 31-Dec-22 58 12 45 25 2
26 Cathay United Bank Company, Limited 31-Dec-22 326 245 200 371 30
27 Chang Hwa Commercial Bank, Ltd. 31-Dec-22 191 24 41 174 (2)
28 Chiba Bank, Ltd. (The) 31-Mar-22 45 2 25 22 -
29 China Bohai Bank Co., Ltd. 31-Dec-22 44 20 153 (89) 7
30 China Construction Bank Corporation 31-Dec-22 1,169 907 725 1,351 (220)
31 China Development Bank 31-Dec-22 1,742 1 255 1,488 (1,296)
32 China Everbright Bank Co., Ltd. 31-Dec-22 1,214 501 419 1,296 729
33 China Guangfa Bank Co., Ltd. 31-Mar-22 99 91 119 71 35
34 China Merchants Bank Co., Ltd. 31-Dec-22 1,910 959 378 2,491 3
35 China Minsheng Banking Corp., Ltd. 31-Dec-22 1,875 760 475 2,160 297
36 China Zheshang Bank Co., Ltd. 31-Dec-22 343 472 168 647 37
* Some branches hold impairment allowances of head office
Other Profit Net profit Total Gross advances Expected credit loss Total deposits Liquidity
items before after tax assets to customers allowance against from customers ratio#
tax customer advances*
33 4,367 3,643 591,658 252,849 2,091 177,643 93.1%

- 620 530 215,669 65,002 494 39,208 41.7%
- 287 242 66,801 50,963 17 1,140 53.5%
- 96 61 102,958 31,605 38 19,102 40.7%
- 306 258 70,105 15,801 2,358 13,630 47.3%
143 (138) (146) 15,980 8,259 1 12,035 47.8%
- 583 484 61,239 30,071 2 49,442 45.9%
- 1,767 1,439 108,744 48,931 1,443 34,867 59.6%
(9) 118 83 150,713 - - - 542.3%
23 748 635 353,564 112,354 2,311 134,639 199.9%
35 (29) (29) 11,859 3,470 31 252 282.1%
16 161 161 15,790 3,620 181 2,178 144.0%
- 107 107 46,784 5,032 - 2,824 173.4%
- 373 287 45,646 340 - 1,562 727.1%
- 36 29 45,062 24,560 - 11,266 47.3%
- 285 237 25,745 9,056 - 15,688 65.7%
3 153 153 12,852 1,510 21 6,982 133.3%
26 476 404 36,088 10,368 166 25,661 62.0%
- (185) (185) 32,537 2,866 - 3,484 207.3%
- 817 692 37,404 194 7 21,738 280.5%
- 117 100 6,288 2,776 6 3,415 81.6%
1 1,208 1,089 315,015 133,026 1,423 198,695 49.2%
- (5) (5) 10,060 2,425 1 6,450 54.3%
- 294 252 61,212 9,552 4 12,224 52.8%
- 23 23 3,989 2,528 24 1,440 46.1%
- 341 279 33,978 10,783 112 13,629 93.5%
- 176 148 11,782 4,475 52 9,541 81.7%
- 22 21 7,651 3,400 - 342 106.5%
- (96) (96) 9,771 4,788 38 3,053 172.7%
- 1,571 1,309 227,457 90,799 505 100,689 44.8%
- 2,784 2,782 266,127 152,994 7,308 51,643 93.8%
- 567 516 207,401 70,733 838 88,006 87.9%
24 12 12 32,548 7,295 116 5,581 299.3%
- 2,488 2,086 139,875 20,849 183 99,265 74.9%
154 1,709 1,576 193,995 105,482 1,019 123,427 63.0%
- 610 509 43,790 12,598 47 11,416 118.3%
Income statement
charges customer
advances
37 CIMB Bank Berhad 31-Dec-22 23 20 89 (46) 44

38 Citibank, N.A. 31-Dec-22 7,232 2,350 4,506 5,076 (8)
39 Commonwealth Bank of Australia 30-Jun-22 46 24 109 (39) 288
40 Coöperatieve Rabobank U.A. 31-Dec-22 641 401 644 398 97
41 Credit Agricole Corporate And Investment Bank 31-Dec-22 448 2,377 1,442 1,383 75
42 Crédit Industriel et Commercial 31-Dec-22 94 33 61 66 -
43 Credit Suisse AG 31-Dec-22 1,141 2,085 3,113 113 18
44 CTBC Bank Co., Ltd. 31-Dec-22 1,451 418 511 1,358 79
45 DBS Bank Ltd. 31-Dec-22 2,238 1,723 805 3,156 (68)
46 Deutsche Bank Aktiengesellschaft 31-Dec-22 1,790 2,868 4,175 483 137
DZ BANK AG Deutsche Zentral-Genossenschaftsbank,
47 31-Dec-22 128 77 195 10 (57)
Frankfurt Am Main
48 E.Sun Commercial Bank, Ltd. 31-Dec-22 708 (32) 145 531 (10)
49 East West Bank 31-Dec-22 308 61 142 227 2
50 EFG Bank AG 31-Dec-22 85 305 489 (99) -
51 Erste Group Bank AG 31-Dec-22 155 (19) 63 73 4
52 Far Eastern International Bank 31-Dec-22 58 13 37 34 (12)
53 First Abu Dhabi Bank PJSC 31-Dec-22 114 75 104 85 (3)
54 First Commercial Bank, Ltd. 31-Dec-22 333 35 47 321 (3)

55 HDFC Bank Limited 31-Mar-22 52 5 18 39 (5)
56 Hua Nan Commercial Bank, Ltd. 31-Dec-22 357 18 54 321 26
57 Hua Xia Bank Co., Limited 31-Dec-22 459 106 226 339 62
58 ICICI Bank Limited 31-Mar-22 64 211 117 158 (32)
59 Indian Overseas Bank 31-Mar-22 64 61 29 96 170
60 Industrial And Commercial Bank of China Limited 31-Dec-22 1,027 177 436 768 (19)
61 Industrial Bank Co., Ltd. 31-Dec-22 1,841 1,109 512 2,438 608
62 Industrial Bank of Korea 31-Dec-22 131 55 36 150 3
63 ING Bank N.V. 31-Dec-22 425 242 460 207 466
64 Intesa Sanpaolo S.p.A. 31-Dec-22 562 (48) 153 361 255
65 JPMorgan Chase Bank, National Association 31-Dec-22 710 9,898 9,007 1,601 1,537
66 KBC Bank N.V. 31-Dec-22 69 37 63 43 42
67 KEB Hana Bank 31-Dec-22 262 119 52 329 1
68 Kookmin Bank 31-Dec-22 337 131 65 403 (21)
69 Land Bank of Taiwan Co., Ltd. 31-Dec-22 83 6 23 66 (5)
70 LGT Bank AG 31-Dec-22 365 1,743 2,062 46 -
71 Malayan Banking Berhad 31-Dec-22 269 4 183 90 679
72 Mashreq Bank - Public Shareholding Company 31-Dec-22 158 44 60 142 (3)

- (90) (237) 11,496 3,691 967 6,520 60.9%

- 5,084 4,038 590,089 102,221 226 421,268 44.0%
- (327) (366) 4,415 1,804 687 474 144.0%
- 301 246 83,676 31,118 341 9,024 58.7%
10 1,298 1,092 242,273 57,102 366 41,766 64.4%
- 66 57 24,819 11,413 11 5,591 49.0%
- 95 75 119,252 32,333 42 40,843 193.4%
3 1,276 1,102 93,690 27,402 206 78,904 72.5%
- 3,224 2,709 302,115 154,674 685 69,819 43.8%
- 346 277 166,606 38,665 591 85,250 67.3%
- 67 67 24,164 8,067 59 497 357.1%
- 541 454 50,389 16,381 316 43,299 70.0%
- 225 188 17,188 7,572 76 12,317 42.0%
- (99) (99) 14,130 5,252 - 11,875 76.9%
- 69 68 41,117 - - - 73.9%
- 46 46 3,888 1,470 20 3,016 53.4%
- 88 74 26,884 2,601 2 14,550 70.0%
- 324 271 16,875 7,224 81 12,940 56.9%

- 44 38 5,602 4,101 41 682 179.9%
(14) 309 256 21,105 6,059 71 17,023 60.8%
- 277 201 64,133 32,151 105 13,586 76.7%
- 190 159 10,727 4,723 61 2,210 61.5%
4 (78) (78) 6,410 3,546 49 1,642 84.7%
- 787 657 200,688 64,895 67 - 68.7%
- 1,830 1,503 233,100 99,634 1,477 99,953 66.3%
- 147 133 17,232 5,081 18 1,751 227.5%
- (259) (216) 87,885 34,503 1,158 5,002 60.9%
- 106 106 62,729 16,264 976 6,730 44.8%
1 63 229 302,879 17,250 1,928 63,655 73.7%
- 1 1 6,046 1,621 52 1,583 49.5%
(6) 334 289 25,373 18,430 144 6,530 61.8%
- 424 369 39,084 27,301 60 1,184 89.3%
(3) 74 71 6,755 3,074 33 2,592 62.3%
- 46 32 59,779 16,517 - 47,738 59.7%
- (589) (589) 56,623 30,032 293 36,154 80.1%
- 145 124 11,444 10,958 4 22 135.7%
Income statement
charges customer
advances
73 Mega International Commercial Bank Co., Ltd. 31-Dec-22 434 32 71 395 (5)
74 Mitsubishi UFJ Trust And Banking Corporation 31-Mar-22 228 (84) 58 86 -
75 Mizuho Bank, Ltd. 31-Mar-22 1,644 510 810 1,344 303
76 MUFG Bank, Ltd. 31-Mar-22 1,169 793 1,132 830 (127)
77 National Australia Bank Limited 30-Sep-22 224 (5) 199 20 (5)
78 Natixis 31-Dec-22 461 2,255 1,667 1,049 24
79 NongHyup Bank 31-Dec-22 9 3 29 (17) 11
80 O-Bank Co., Ltd. 31-Dec-22 292 99 125 266 38
81 Oversea-Chinese Banking Corporation Limited 31-Dec-22 726 192 409 509 276
82 Ping An Bank Co., Ltd. 31-Dec-22 366 334 322 378 477
83 Qatar National Bank (Q.P.S.C.) 31-Dec-22 49 5 63 (9) 5
84 Royal Bank of Canada 31-Oct-22 45 772 881 (64) -
85 Shanghai Commercial & Savings Bank, Ltd. (The) 31-Dec-22 198 32 46 184 127
86 Shanghai Pudong Development Bank Co., Ltd. 31-Dec-22 1,064 1,287 572 1,779 316
87 Shinhan Bank 31-Dec-22 259 144 70 333 (7)
88 Societe Generale 31-Dec-22 511 1,770 1,941 340 67
89 State Bank of India 31-Mar-22 528 82 442 168 (21)
90 State Street Bank And Trust Company 31-Dec-22 298 1,405 1,413 290 -
91 Sumitomo Mitsui Banking Corporation 31-Mar-22 1,649 636 632 1,653 773
92 Sumitomo Mitsui Trust Bank, Limited 31-Mar-22 (19) 294 97 178 53
93 Taipei Fubon Commercial Bank Co., Ltd. 31-Dec-22 671 277 183 765 (17)
94 Taishin International Bank Co., Ltd 31-Dec-22 266 120 169 217 102
95 Taiwan Business Bank, Ltd 31-Dec-22 101 10 38 73 10
96 Taiwan Cooperative Bank, Ltd. 31-Dec-22 120 5 37 88 (34)
97 Taiwan Shin Kong Commercial Bank Co., Ltd. 31-Dec-22 156 4 56 104 (10)
98 UBS AG 31-Dec-22 2,821 15,140 11,223 6,738 (175)
99 UCO Bank 31-Mar-22 60 12 17 55 (7)
100 UniCredit Bank AG 31-Dec-22 380 (224) 289 (133) (66)
101 Union Bancaire Privée, UBP SA 31-Dec-22 291 310 506 95 -
102 Union Bank of India 31-Mar-22 88 37 24 101 67
103 United Overseas Bank Ltd. 31-Dec-22 2,496 1,068 772 2,792 315
104 Wells Fargo Bank, National Association 31-Dec-22 - 1,346 1,280 66 -
105 Westpac Banking Corporation 30-Sep-22 (20) (16) 42 (78) -
106 Woori Bank 31-Dec-22 314 57 35 336 10
107 Yuanta Commercial Bank Co., Ltd. 31-Dec-22 27 6 33 - (4)
Total 2022 66,621 76,779 77,590 65,810 7,777

(4) 404 344 36,323 7,071 77 33,455 56.6%

- 86 86 30,388 - - 1,010 107.6%
25 1,016 823 444,774 185,569 611 80,260 56.9%
3 954 911 351,436 191,881 1,926 80,531 43.5%
11 14 4 39,368 1,874 12 12,385 181.1%
- 1,025 882 69,772 47,333 65 6,280 73.4%
- (28) (28) 2,097 1,442 10 - 21911.3%
- 228 191 14,687 8,790 120 12,379 51.7%
- 233 192 129,632 62,468 260 24,004 93.3%
- (99) (161) 61,301 33,631 623 33,894 88.5%
- (14) (14) 42,970 1,013 5 28,191 67.7%
- (64) (64) 45,578 1,213 - 9,381 101.0%
- 57 27 9,604 3,123 189 4,129 44.8%
- 1,463 1,221 211,792 64,636 713 87,418 72.2%
- 340 283 38,975 23,343 67 5,497 124.9%
- 273 205 114,579 44,073 409 6,398 50.2%
- 189 159 121,313 32,829 292 4,308 78.5%
- 290 249 66,598 146 - 19,559 85.4%
- 880 800 302,801 153,769 1,301 52,623 50.0%
- 125 160 71,147 14,501 133 19,176 111.1%
(1) 783 668 58,321 16,056 188 42,795 61.7%
- 115 94 25,815 10,386 131 21,581 48.1%
(3) 66 66 5,238 1,649 (44) 3,649 44.6%
- 122 122 6,056 1,976 81 4,814 62.3%
(1) 115 98 10,774 4,246 49 10,374 79.7%
- 6,913 5,718 232,597 104,424 396 179,423 86.4%
- 62 59 8,800 5,681 112 950 309.8%
- (67) (67) 34,769 - - 17 268.7%
- 95 78 24,534 5,909 - 15,116 92.9%
- 34 34 6,387 1,839 360 100 140.2%
- 2,477 2,059 234,325 161,474 1,410 59,995 44.6%
- 66 65 3,955 1,773 - - 3053.2%
- (78) (78) 534 - - - 17606.7%
- 326 278 35,304 16,659 43 2,875 91.7%
- 4 3 3,608 196 2 2,008 99.1%
474 57,559 48,500 9,564,949 3,427,457 41,591 3,332,722 -
Foreign bank branches – Financial highlights
(Continued)
Key ratios
HK$ million Year ended Net customer Net interest Non-interest Cost/
loan/deposit ratio income/ income/total income
average operating ratio
total assets income
1 Agricultural Bank of China Limited 31-Dec-22 141.2% 0.7% 20.9% 10.1%
2 Australia And New Zealand Banking Group Limited 30-Sep-22 164.5% 0.5% 42.1% 58.8%
3 Banco Bilbao Vizcaya Argentaria S.A. 31-Dec-22 4468.9% 0.6% 39.5% 51.2%
4 Banco Santander, S.A. 31-Dec-22 165.3% 0.3% 69.3% 89.1%
5 Bangkok Bank Public Company Limited 31-Dec-22 98.6% 0.6% 26.6% 28.9%
6 Bank J. Safra Sarasin AG 31-Dec-22 68.6% 1.2% 57.0% 99.1%
7 Bank Julius Baer & Co. Ltd. 31-Dec-22 60.8% 1.1% 70.5% 77.9%
8 Bank of America, National Association 31-Dec-22 136.2% 1.1% 55.0% 54.8%
9 Bank of China Limited 31-Dec-22 N/A 0.1% 45.6% 54.4%
10 Bank of Communications Co., Ltd. 31-Dec-22 81.7% 0.6% 27.1% 46.7%
11 Bank of Dongguan Co., Ltd. 31-Dec-22 1364.7% 1.5% 9.4% 94.9%
12 Bank of India 31-Mar-22 157.9% 0.4% 74.6% 18.3%
13 Bank of Montreal 31-Oct-22 178.2% 0.1% 90.6% 68.4%
14 Bank of New York Mellon (The) 31-Dec-22 21.8% 0.7% 60.3% 60.2%
15 Bank of Nova Scotia (The) 31-Oct-22 218.0% 0.5% 27.6% 87.7%
16 Bank of Singapore Limited 31-Dec-22 57.7% 0.5% 86.9% 71.6%
17 Bank of Taiwan 31-Dec-22 21.3% 1.1% 3.3% 24.5%
18 Bank Sinopac 31-Dec-22 39.8% 1.5% 31.1% 24.6%
19 Banque Pictet & Cie Sa 31-Dec-22 82.3% 0.4% 74.3% 162.5%
20 Barclays Bank PLC 31-Dec-22 0.9% 0.2% 98.6% 71.1%
21 BDO Unibank, Inc. 31-Dec-22 81.1% 2.1% 15.7% 22.9%
22 BNP Paribas 31-Dec-22 66.2% 0.9% 57.9% 73.6%
23 CA Indosuez (Switzerland) SA 31-Dec-22 37.6% 0.6% 83.5% 101.5%
24 Canadian Imperial Bank of Commerce 31-Oct-22 78.1% 0.2% 84.0% 42.3%
25 Cathay Bank 31-Dec-22 173.9% 1.5% 17.1% 64.3%
26 Cathay United Bank Company, Limited 31-Dec-22 78.3% 1.1% 42.9% 35.0%
27 Chang Hwa Commercial Bank, Ltd. 31-Dec-22 46.4% 1.6% 11.2% 19.1%
28 Chiba Bank, Ltd. (The) 31-Mar-22 994.2% 0.5% 4.3% 53.2%
29 China Bohai Bank Co., Ltd. 31-Dec-22 155.6% 0.5% 31.3% 239.1%
30 China Construction Bank Corporation 31-Dec-22 89.7% 0.5% 43.7% 34.9%
31 China Development Bank 31-Dec-22 282.1% 0.6% 0.1% 14.6%
32 China Everbright Bank Co., Ltd. 31-Dec-22 79.4% 0.6% 29.2% 24.4%
33 China Guangfa Bank Co., Ltd. 31-Mar-22 128.6% 0.4% 47.9% 62.6%
34 China Merchants Bank Co., Ltd. 31-Dec-22 20.8% 1.3% 33.4% 13.2%
35 China Minsheng Banking Corp., Ltd. 31-Dec-22 84.6% 0.9% 28.8% 13.2%
36 China Zheshang Bank Co., Ltd. 31-Dec-22 109.9% 0.7% 57.9% 20.6%
Loan asset quality

Impaired advances / Stage 3 advances
ROA Gross Gross Stage 3 expected Stage 3 expected credit loss Collateral
impaired impaired advances/ credit loss allowance allowance made against impaired for impaired
advances Advances to made against advances as percentage advances
customers impaired advances of gross impaired advances
0.6% 137 0.1% 133 97.1% -

0.3% 55 0.1% 55 100.0% -
0.4% 154 0.3% 8 5.2% 154
0.1% - 0.0% - N/A -
0.4% 226 1.4% 212 93.8% 14
-0.8% - 0.0% - N/A -
0.7% - 0.0% - N/A -
1.3% 2,383 4.9% 895 37.6% -
0.1% - N/A - N/A -
0.2% 2,501 2.2% 2,126 85.0% 1,223
-0.4% - 0.0% - N/A -
1.0% 17 0.5% 17 100.0% 4
0.2% - 0.0% - N/A -
0.5% - 0.0% - N/A -
0.1% - 0.0% - N/A -
0.8% - 0.0% - N/A -
1.1% - 0.0% - N/A -
1.1% 58 0.6% 41 70.7% -
-0.9% - 0.0% - N/A -
2.9% - 0.0% - N/A -
1.6% - 0.0% - N/A -
0.3% 1,435 1.1% 842 58.7% 141
-0.1% - 0.0% - N/A -
0.6% - 0.0% - N/A -
0.6% 57 2.3% - 0.0% 21
0.9% - 0.0% - N/A -
1.2% 232 5.2% 5 2.2% -
0.3% - 0.0% - N/A -
-1.1% - 0.0% - N/A -
0.6% - 0.0% - N/A -
1.0% 5,310 3.5% 4,136 77.9% 62
0.2% 3,145 4.4% 432 13.7% 1,900
0.0% - 0.0% - N/A -
1.4% 21 0.1% 15 71.4% -
0.8% 1,045 1.0% 550 52.6% -
1.0% - 0.0% - N/A -
Key ratios
total assets income
37 CIMB Bank Berhad 31-Dec-22 41.8% 0.2% 46.5% 207.0%
38 Citibank, N.A. 31-Dec-22 24.2% 1.3% 24.5% 47.0%
39 Commonwealth Bank of Australia 30-Jun-22 235.7% 0.8% 34.3% 155.7%
40 Coöperatieve Rabobank U.A. 31-Dec-22 341.1% 0.7% 38.5% 61.8%
41 Credit Agricole Corporate And Investment Bank 31-Dec-22 135.8% 0.2% 84.1% 51.0%
42 Crédit Industriel et Commercial 31-Dec-22 203.9% 0.4% 26.0% 48.0%
43 Credit Suisse AG 31-Dec-22 79.1% 0.9% 64.6% 96.5%
44 CTBC Bank Co., Ltd. 31-Dec-22 34.5% 1.7% 22.4% 27.3%
45 DBS Bank Ltd. 31-Dec-22 220.6% 0.7% 43.5% 20.3%
46 Deutsche Bank Aktiengesellschaft 31-Dec-22 44.7% 1.1% 61.6% 89.6%
DZ BANK AG Deutsche Zentral-Genossenschaftsbank,
47 31-Dec-22 1611.3% 0.6% 37.6% 95.1%
Frankfurt Am Main
48 E.Sun Commercial Bank, Ltd. 31-Dec-22 37.1% 1.5% -4.7% 21.4%
49 East West Bank 31-Dec-22 60.9% 1.9% 16.5% 38.5%
50 EFG Bank AG 31-Dec-22 44.2% 0.6% 78.2% 125.4%
51 Erste Group Bank AG 31-Dec-22 N/A 0.5% -14.0% 46.3%
52 Far Eastern International Bank 31-Dec-22 48.1% 1.5% 18.3% 52.1%
53 First Abu Dhabi Bank PJSC 31-Dec-22 17.9% 0.3% 39.7% 55.0%
54 First Commercial Bank, Ltd. 31-Dec-22 55.2% 1.9% 9.5% 12.8%

55 HDFC Bank Limited 31-Mar-22 595.3% 0.9% 8.8% 31.6%
56 Hua Nan Commercial Bank, Ltd. 31-Dec-22 35.2% 1.6% 4.8% 14.4%
57 Hua Xia Bank Co., Limited 31-Dec-22 235.9% 0.9% 18.8% 40.0%
58 ICICI Bank Limited 31-Mar-22 211.0% 0.6% 76.7% 42.5%
59 Indian Overseas Bank 31-Mar-22 213.0% 1.0% 48.8% 23.2%
60 Industrial And Commercial Bank of China Limited 31-Dec-22 N/A 0.5% 14.7% 36.2%
61 Industrial Bank Co., Ltd. 31-Dec-22 98.2% 0.8% 37.6% 17.4%
62 Industrial Bank of Korea 31-Dec-22 289.1% 0.8% 29.6% 19.4%
63 ING Bank N.V. 31-Dec-22 666.6% 0.5% 36.3% 69.0%
64 Intesa Sanpaolo S.p.A. 31-Dec-22 227.2% 0.9% -9.3% 29.8%
65 JPMorgan Chase Bank, National Association 31-Dec-22 24.1% 0.3% 93.3% 84.9%
66 KBC Bank N.V. 31-Dec-22 99.1% 1.1% 34.9% 59.4%
67 KEB Hana Bank 31-Dec-22 280.0% 1.1% 31.2% 13.6%
68 Kookmin Bank 31-Dec-22 2300.8% 0.9% 28.0% 13.9%
69 Land Bank of Taiwan Co., Ltd. 31-Dec-22 117.3% 1.2% 6.7% 25.8%
70 LGT Bank AG 31-Dec-22 34.6% 0.7% 82.7% 97.8%
71 Malayan Banking Berhad 31-Dec-22 82.3% 0.5% 1.5% 67.0%
72 Mashreq Bank - Public Shareholding Company 31-Dec-22 49790.9% 1.4% 21.8% 29.7%
Loan asset quality

-2.1% 1,224 33.2% 967 79.0% -
0.7% - 0.0% - N/A -
-6.4% 766 42.5% 685 89.4% N/A
0.3% 758 2.4% 319 42.1% 288
0.5% 297 0.5% 161 54.2% N/A
0.3% - 0.0% - N/A -
0.1% 8 0.0% 8 100.0% -
1.3% 100 0.4% 80 80.0% 9
0.8% 344 0.2% 344 100.0% -
0.2% 961 2.5% 513 53.4% 175
0.3% 81 1.0% 59 72.8% -
1.0% - 0.0% - N/A -
1.2% - 0.0% - N/A -
-0.7% - 0.0% - N/A -
0.2% - N/A - N/A -
1.2% - 0.0% - N/A -
0.2% - 0.0% - N/A -
1.6% - 0.0% - N/A -

0.6% - 0.0% - N/A -
1.2% - 0.0% - N/A -
0.4% - 0.0% - N/A -
1.4% 2 0.0% - 0.0% -
-1.3% 304 8.6% 21 6.9% 46
0.3% - 0.0% - N/A -
0.7% 844 0.8% 401 47.5% 531
0.8% - 0.0% - N/A -
-0.3% 3,233 9.4% 1,119 34.6% 2,435
0.2% 1,223 7.5% 912 74.6% 72
0.1% 332 1.9% - 0.0% -
0.0% 88 5.4% 49 55.7% -
1.2% 262 1.4% 119 45.4% 44
1.0% - 0.0% - N/A -
1.1% - 0.0% - N/A -
0.1% - 0.0% - N/A -
-1.1% 2,742 9.1% 257 9.4% 60
1.1% - 0.0% - N/A -
Key ratios
total assets income
73 Mega International Commercial Bank Co., Ltd. 31-Dec-22 20.9% 1.2% 6.9% 15.2%
74 Mitsubishi UFJ Trust And Banking Corporation 31-Mar-22 0.0% 0.7% -58.3% 40.3%
75 Mizuho Bank, Ltd. 31-Mar-22 230.4% 0.3% 23.7% 37.6%
76 MUFG Bank, Ltd. 31-Mar-22 235.9% 0.3% 40.4% 57.7%
77 National Australia Bank Limited 30-Sep-22 15.0% 0.5% -2.3% 90.9%
78 Natixis 31-Dec-22 752.7% 0.6% 83.0% 61.4%
79 NongHyup Bank 31-Dec-22 N/A 0.9% 25.0% 241.7%
80 O-Bank Co., Ltd. 31-Dec-22 70.0% 2.1% 25.3% 32.0%
81 Oversea-Chinese Banking Corporation Limited 31-Dec-22 259.2% 0.6% 20.9% 44.6%
82 Ping An Bank Co., Ltd. 31-Dec-22 97.4% 0.6% 47.7% 46.0%
83 Qatar National Bank (Q.P.S.C.) 31-Dec-22 3.6% 0.1% 9.3% 116.7%
84 Royal Bank of Canada 31-Oct-22 12.9% 0.1% 94.5% 107.8%
85 Shanghai Commercial & Savings Bank, Ltd. (The) 31-Dec-22 71.1% 2.2% 13.9% 20.0%
86 Shanghai Pudong Development Bank Co., Ltd. 31-Dec-22 73.1% 0.5% 54.7% 24.3%
87 Shinhan Bank 31-Dec-22 423.4% 0.7% 35.7% 17.4%
88 Societe Generale 31-Dec-22 682.5% 0.4% 77.6% 85.1%
89 State Bank of India 31-Mar-22 755.3% 0.4% 13.4% 72.5%
90 State Street Bank And Trust Company 31-Dec-22 0.7% 0.5% 82.5% 83.0%
91 Sumitomo Mitsui Banking Corporation 31-Mar-22 289.7% 0.5% 27.8% 27.7%
92 Sumitomo Mitsui Trust Bank, Limited 31-Mar-22 74.9% 0.0% 106.9% 35.3%
93 Taipei Fubon Commercial Bank Co., Ltd. 31-Dec-22 37.1% 1.1% 29.2% 19.3%
94 Taishin International Bank Co., Ltd 31-Dec-22 47.5% 1.1% 31.1% 43.8%
95 Taiwan Business Bank, Ltd 31-Dec-22 46.4% 2.0% 9.0% 34.2%
96 Taiwan Cooperative Bank, Ltd. 31-Dec-22 39.4% 1.6% 4.0% 29.6%
97 Taiwan Shin Kong Commercial Bank Co., Ltd. 31-Dec-22 40.5% 1.4% 2.5% 35.0%
98 UBS AG 31-Dec-22 58.0% 1.1% 84.3% 62.5%
99 UCO Bank 31-Mar-22 586.2% 0.8% 16.7% 23.6%
100 UniCredit Bank AG 31-Dec-22 0.0% 0.7% -143.6% 185.3%
101 Union Bancaire Privée, UBP SA 31-Dec-22 39.1% 1.2% 51.6% 84.2%
102 Union Bank of India 31-Mar-22 1479.0% 0.9% 29.6% 19.2%
103 United Overseas Bank Ltd. 31-Dec-22 266.8% 1.1% 30.0% 21.7%
104 Wells Fargo Bank, National Association 31-Dec-22 N/A 0.0% 100.0% 95.1%
105 Westpac Banking Corporation 30-Sep-22 N/A -1.4% 44.4% -116.7%
106 Woori Bank 31-Dec-22 577.9% 0.9% 15.4% 9.4%
107 Yuanta Commercial Bank Co., Ltd. 31-Dec-22 9.7% 0.7% 18.2% 100.0%
Total 2022 101.6% 0.7% 53.5% 54.1%
Loan asset quality

0.9% - 0.0% - N/A -

0.3% - N/A - N/A -
0.2% 612 0.3% 610 99.7% 1
0.2% - 0.0% - N/A -
0.0% 4 0.2% - 0.0% 7
1.1% 65 0.1% - 0.0% -
-2.7% - 0.0% - N/A -
1.4% 61 0.7% 22 36.1% 42
0.2% 20 0.0% 20 100.0% -
-0.3% - 0.0% - N/A -
0.0% - 0.0% - N/A -
-0.2% - 0.0% - N/A -
0.3% 716 22.9% 153 21.4% -
0.6% 369 0.6% 207 56.1% -
0.7% - 0.0% - N/A -
0.2% 444 1.0% 341 76.8% 108
0.1% - 0.0% - N/A -
0.4% - 0.0% - N/A -
0.3% 1,006 0.7% 529 52.6% -
0.2% 133 0.9% 133 100.0% -
1.1% 27 0.2% 27 100.0% -
0.4% 102 1.0% 102 100.0% -
1.3% 34 2.1% (19) -55.9% -
1.6% 180 9.1% 53 29.4% -
0.9% - 0.0% - N/A -
2.3% 1,934 1.9% 396 20.5% 1,538
0.8% 82 1.4% - 0.0% -
-0.1% - N/A - N/A -
0.3% - 0.0% - N/A -
0.3% 300 16.3% 300 100.0% -
0.9% 2,398 1.5% 1,079 45.0% 713
1.2% - 0.0% - N/A -
-5.3% - N/A - N/A -
0.8% - 0.0% - N/A -
0.1% - 0.0% - N/A -
0.5% 38,832 1.1% 19,434 50.0% 9,588
Virtual banks – Financial highlights
Income statement
HK$ million Year ended Net Non- Operating Operating Change in Other Profit Net
interest interest expenses profit before expected items before profit
income income impairment credit loss tax after
charges against tax
customer
advances
1 Airstar Bank Limited 31-Dec-22 63 2 230 (165) 34 1 (200) (200)
2 Ant Bank (Hong Kong) Limited 31-Dec-22 15 2 219 (202) - 1 (203) (203)
3 Fusion Bank Limited 31-Dec-22 8 (8) 525 (525) 8 - (533) (533)
4 Livi Bank Limited 31-Dec-22 8 9 710 (693) 16 6 (715) (715)
5 Mox Bank Limited 31-Dec-22 114 56 694 (524) 98 9 (631) (631)
Ping An OneConnect Bank (Hong Kong)

6 31-Dec-22 94 3 243 (146) 11 - (157) (157)
Limited
7 Welab Bank Limited 31-Dec-22 34 10 465 (424) 34 - (458) (458)
8 ZA Bank Limited 31-Dec-22 192 82 723 (449) 28 22 (499) (499)
Total 2022 528 156 3,809 (3,128) 229 39 (3,396) (3,396)
Key ratios
Size and strength measures Performance measures
Total Gross Expected Total Total Capital Liquidity Net Net Non- Cost/ ROA ROE
assets advances to credit loss deposits equity adequacy ratio customer interest interest income
customers allowance from ratio loan/ income/ income/ ratio
against customers deposit average total
customer ratio total operating
advances assets income
2,660 839 38 1,799 758 49.8% 176.2% 44.5% 2.1% 3.1% 353.8% -6.8% -23.3%
1,443 48 1 354 1,017 241.1% 321.1% 13.3% 0.9% 11.8% 1288.2% -11.8% -18.3%
4,371 967 7 3,437 607 35.3% 209.6% 27.9% 0.2% 1902.0% -131881.2% -12.1% -66.8%
4,098 1,318 14 3,098 781 43.4% 154.6% 42.1% 0.2% 52.9% 4176.5% -16.9% -72.4%
10,414 5,044 87 8,365 1,383 19.0% 44.2% 59.3% 1.3% 32.9% 408.2% -7.3% -52.0%
3,193 1,799 13 2,147 848 98.3% 124.8% 83.2% 3.3% 3.1% 250.5% -5.5% -20.3%
2,689 1,443 33 1,978 502 31.5% 152.1% 71.3% 1.2% 22.7% 1056.8% -16.3% -90.4%
11,608 4,928 47 9,172 2,159 25.3% 76.9% 53.2% 1.8% 29.9% 263.9% -4.7% -21.5%
40,476 16,386 240 30,350 8,055 - - 53.2% 1.4% 22.8% 556.9% -8.9% -39.6%
About KPMG
KPMG China has offices located in 31 cities with over 15,000 partners and staff,
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can trace its origins to 1945. This early commitment to this market, together
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Contact us
Bonn Liu Gemini Yang Guy Isherwood
Head of Financial Services Partner, Financial Risk Management Senior Advisor
Hong Kong KPMG China KPMG China
KPMG China +852 3927 5731 +852 2978 8243
+852 2826 7241 gemini.yang@kpmg.com guy.isherwood@kpmg.com
bonn.liu@kpmg.com
Barnaby Robson Irene Lee
Jianing Song Partner, Deal Advisory, Hong Kong Partner, Tax, Hong Kong
Head of Advisory, Hong Kong KPMG China KPMG China
Head of Banking and Capital Markets Sector, +852 2826 7151 +852 2685 7372
Hong Kong barnaby.robson@kpmg.com irene.lee@kpmg.com
KPMG China
+852 2978 8101 Robert Zhan Chee Hoong Tong
jianing.n.song@kpmg.com Director, Risk Consulting, Hong Kong Partner, Asset Management, Hong Kong
KPMG China KPMG China
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Publication number: HK-FS23-0004
Publication date: June 2023

Hong Kong Banking Report 2023

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Back to Business,

China Real Estate 18

Hong Kong as an IFC 21

Chinese Banks in Hong Kong 27

China Economic Outlook 30

Climate Risk Management 37

Risk and Regulatory Trends 57

Data Analytics Platforms 67

Key trends and topics

Banks in Hong Kong see balance-sheet and profit

Net interest margin

Source: Extracted from individual banks’ financial and public statements

Source: Extracted from individual banks’ financial and public statements

Under inflationary pressure, cost management remained an essential focus for

Bank of Communications (Hong Kong) Limited (BoCom (HK)) and Standard

Loans and advances

Source: Extracted from individual banks’ financial and public statements

Source: Extracted from individual banks’ financial and public statements

ICBC (Asia) and Nanyang Commercial Bank, Limited showed an improvement,

In 2022, the Chinese authorities introduced comprehensive policy support, which

Virtual Banks Forge Path to Sustainability

Virtual players will need to take note of fierce

Loss before tax (HKD’m)

2022 2021 2020

In terms of financial performance in 2022, all virtual banks continued to report a

Loans and Deposits (HKD’m)

2022 Deposits 2021 Deposits

Note: The percentages show the loan-to-deposit ratios

Differentiation remains key to future development

For instance, Ping An OneConnect Bank partnered with an e-commerce company

Venturing into wealth management and insurance

The path to sustainability

Chinese Real Estate

Exposure to struggling property developers has helped

The Central Government’s priority is understandably to complete the projects

Complex loans and lessons learned

2. Where an asset bubble is identified, ensure that counterparty underwriting

3. Confirm credit policies restrict any structural subordination of the bank’s

These long-term ‘rescheduling’ plans will provide

Hong Kong as an IFC

Now that the city has fully reopened, Hong Kong

In addition, our connections with the Chinese Mainland cannot be replicated by

In terms of emerging sectors, the Hong Kong government is making significant

Lifestyle and talent

To be a successful financial centre, a city needs to be able to attract a wide

Hong Kong as an IFC

In an increasingly complex global environment, Hong

As a world-class city in terms of lifestyle as well as a global financial centre,

Transfer pricing regime

Shifting tax landscape

While Hong Kong’s tax system has become

Hong Kong as an IFC

Chinese Banks in Hong Kong

Border reopening has revived cross-border financial

Besides the resumption of physical links, there have been developments in

The various “Connect” schemes that facilitate cross-border investment continue

Attracting more local customers, especially young professionals, does present

In terms of using technology to offer better service to business customers,

• using transition finance to help high-carbon industries transition to low carbon