Hong Kong’s banking sector remains resilient and well-capitalized amid the possibility that recent Middle East conflicts could affect US interest rate movements by clouding the US inflation outlook.
“The banking sector remains resilient and well-capitalized, but it may face challenges from uncertainties over global trade tensions, future US interest rate movements, geopolitical risk, and headwinds in certain local economic sectors,” the Hong Kong Monetary Authority (HKMA) said in its Half-Yearly Monetary and Financial Stability Report, released on Monday.
The HKMA said given its relatively modest cross-border exposures to the Middle East, the direct impact of recent conflicts there on Hong Kong’s banking sector should be manageable.
ALSO READ: Super rich regain zest for Hong Kong as war stokes Gulf unease
However, the city’s banking industry regulator warned that “a prolonged conflict could disrupt global energy and commodity supply chains, and potentially weigh on global economic growth and the path of US interest rates by clouding the US inflation outlook”.
The report said as at March total deposits have increased 3.9 percent since June 2025, reflecting investor confidence in Hong Kong. In the same period, foreign currency deposits increased 8.4 percent while Hong Kong dollar denominated deposits decreased 1.7 percent.
READ MORE: Manulife bets on Hong Kong to drive AI expansion in Asia
It added that while the classified loan ratio edged up in the second half of last year to 2.01 percent at end-December 2025, the overall asset quality remained manageable with sufficient bank provisions.
The consolidated total capital ratio of locally incorporated authorized institutions (AIs) stood at 25.1 percent in 2025, which was above the international minimum requirement of 8 percent. The non-risk-based leverage ratio of locally incorporated AIs remained at 8 percent in the same period, exceeding the statutory minimum of 3 percent.
The profitability gauge is also in good shape, with the aggregate pre-tax operating profit of retail banks in the city increasing 7.3 percent in 2025, and the net interest margin of retail banks rising to 1.57 percent.
The HKMA added Hong Kong’s real economic growth expanded solidly in the second half of last year, driven by robust export growth and a recovery in domestic demand. It said it expects Hong Kong’s economy to grow moderately this year, with sustained goods export growth amid an ongoing artificial intelligence investment boom and further strengthening in domestic demand.
The city’s housing market continues to recover, supported by improving market sentiment, with housing prices further stabilizing, it added, but commercial property prices and rents remain under pressure.
