Deposit inflows outpace Hong Kong lending

Banks face excess liquidity as credit demand lags.

Hong Kong’s banking sector is seeing deposits rise steadily whilst lending growth remains subdued, leaving banks with excess liquidity and raising questions about how funds will be deployed in 2026. Despite strong capital inflows into the financial system, cautious credit demand, particularly in property, has limited loan growth.

Deposit growth remains a priority for banks as it provides a relatively cheap source of funding. Paul McSheaffrey, Senior Banking Partner of KPMG China, said lenders typically prefer deposits over wholesale funding. “Firstly, banks really do look to grow deposits, and it's something that does help them, given it typically has a cheaper cost of funding than perhaps going into the wholesale market,” he said.

Macroeconomic factors have also supported rising deposits. “Generally, deposit growth follows the GDP of the market you're in, and Hong Kong has still been showing some positive GDP growth and that money will make its way into bank deposits, to some extent,” McSheaffrey said.

Hong Kong’s role as a global wealth management hub is another key driver. Capital inflows linked to private wealth and asset management have continued to strengthen deposits in the banking system. “If you look at a report that we prepared with the Private Wealth Management Association, based on SFC statistics, I think the AUM in the market for private wealth management and asset management in Hong Kong grew about 15% in 2024.”

“And we're seeing anecdotally, we think that's similar in 2025, so we've seen a lot of inflows into Hong Kong, because Hong Kong is probably one of, if not the premier, offshore wealth management center in the world, and definitely in Asia,” he said.

At the same time, stronger equity market performance has drawn institutional investors back to the city, with some capital temporarily held in bank deposits. “The equity markets in Hong Kong are actually performing really well, and therefore, institutional investors are coming back to Hong Kong. They are investing, but that means that they have some money sitting in deposits ready to deploy into banks,” McSheaffrey said.

However, lending growth remains constrained by weak credit demand tied to property markets. “If you look at the breakdown of lending across the Hong Kong banking sector, it is largely focused on property. Whether that is residential mortgages here in Hong Kong or into a kind of corporate real estate,” he said.

As deposits continue to grow faster than loans, banks must balance returns and risk when deploying excess liquidity. “They've got to maximise returns, and generally, lending is better than just putting it in debt instruments, money market investments, etc. But at the same time, we've got to make sure they're doing it to good credit,” he said.

Looking ahead, lending opportunities may emerge as Hong Kong supports Chinese companies expanding overseas and facilitates foreign investment into China.