Investment Rating - The report does not explicitly state an investment rating for the Hong Kong banking industry Core Insights - The Hong Kong banking industry demonstrated resilience in 2024, with total assets growing by 4.5% despite challenges such as weak loan demand and a slight decline in net interest margins [10][17] - The overall operating profit before impairment charges increased by 7.8% year-on-year, reaching HKD 318 billion, driven by strict cost control and operational efficiency [10][18] - The report highlights the importance of digital transformation and the integration of AI technologies in enhancing operational efficiency and compliance [13][71] Financial Performance Summary - In 2024, the total assets of licensed banks in Hong Kong reached HKD 24 trillion, with customer deposits increasing by 4.1% despite a 2.3% decline in loans and advances [17][18] - The average net interest margin for the top ten licensed banks decreased from 1.65% in 2023 to 1.59% in 2024, with total net interest income dropping by 5.9% to HKD 295 billion [25][26] - The cost-to-income ratio improved slightly from 42.6% in 2023 to 42.2% in 2024, reflecting effective cost management strategies [31][32] Non-Performing Loans - The overall non-performing loan ratio for the banking sector increased from 1.65% to 2.15% in 2024, influenced by the downturn in the real estate market [44][46] - Bank of China (Hong Kong) reported the lowest non-performing loan ratio at 0.33%, while Hang Seng Bank experienced the highest increase to 6.12% [43][44] Impact of US-China Tariffs - The report discusses the recent tariff agreements between the US and China, which temporarily reduced tariffs but left significant uncertainty in trade relations [61][62] - The banking sector is advised to closely monitor the evolving trade policies and assess risks associated with export-dependent borrowers [64][65] Digital Transformation and AI - The development of AI agents is highlighted as a key focus for the banking industry, with banks integrating AI into broader digital transformation strategies [13][79] - The report emphasizes the need for banks to enhance their governance and control frameworks alongside the deployment of new technologies [13][72] Future Outlook - The profitability of the Hong Kong banking sector in 2025 will depend on trade dynamics and the Federal Reserve's response to inflation driven by tariffs [27][66] - The report suggests that banks should diversify their portfolios and accelerate digital transformation to achieve long-term stability [56][66]