Banking system outlook up to stable from negative: Moody's

Thanks to global economic growth and favourable monetary conditions.

Hong Kong’s banking system can expect a secure year ahead as credit rating agency Moody’s upgrades its outlook to stable from negative on the back of stronger global economic growth, according to a press release.

"While high asset prices and private-sector leverage remain key latent risks in the banking system, these factors are mitigated by ongoing economic expansion and still accommodative monetary conditions over the outlook horizon," said Moody’s analyst Sherry Zhang.

The domestic economic expansion will continue onto 2018 as supported by an uptick in global economic activity and strong performance from the mainland.

Monetary policies also remain favourable as they will gradually mirror the Fed’s tightening policy as a result of the territories’ linked exchange rates. The impact from the rate hike is also projected to be gradual and contained as it will be offset by margin pressure on lending.

Moody’s adds that credit growth in the next 18 months will be buoyed by sustained economic expansion and low borrowing costs as loan growth slowed to 2.3% in Q3 from 5.4% in Q2.

Banks are also expected to retain their strong capitalisation, boosted by retained earnings and more stringent regulatory requirements. Financial market conditions similarly remain positive as it will continue to drive growth to fee-based income such as brokerage fees and loan-related fees.