...In 2008, banks in Hong Kong reported declining profitability, a slowdown in loan growth, and a deterioration in loan quality, as the local economy entered recession in the second half of the year amid a slowdown in the major economies around the world. The operating environment remains challenging in 2009, as trade flows remain subdued amid the drop in overseas demand, and as unemployment rises and consumer spending declines. Fitch Ratings expects bank profitability to decline further in 2009 as fee income remains depressed amid heightened investor risk aversion, while credit costs climb higher as loan quality deteriorates. The latter follows very strong loan growth by the banks in recent years, with high default risks most notable for borrowers in the trade and manufacturing sectors, which are struggling with falling external demand and low profit margins. Property development and investment loans, which have been especially strong in recent years, are also a concern. Although the rating...
