Trade easing and AI demand lift Hong Kong banks' H2 outlook

Banks should monitor real estate exposure as property softness persists.

The outlook for Hong Kong’s banks is positive for the remainder of 2026, lifted by strong demand for artificial intelligence (AI) related products and easing trade tensions, according to KPMG.

Enhanced cross-boundary connectivity and supportive policies is set to stimulate growth in service reports, according to the Hong Kong Banking Report 2026.

Key challenges include a rate environment that “is not clear on direction,” ongoing pricing and sales downturn in mainland China’s housing market, and softness in Hong Kong’s commercial real estate sector, said KPMG partners Benjamin Man and Samuel Luk.

“Against this backdrop, banks should maintain prudent risk management and actively monitor exposures within highly leveraged real estate portfolios and vulnerable corporate commercial sectors,” Man and Luk said.

NIMs down in 2025
Licensed banks’ net interest margins (NIM) contracted by 7 basis points (bp) in 2025 compared to 2024 due to the US Federal Reserve’s interest rate cuts.

More broadly, the US tariff hikes and trade tensions caused volatility in the first half of the year.

Amongst the banks, HSBC, Standard Chartered Hong Kong, Nanyang Commercial Bank, and China Construction Bank (Asia) all reported higher NIMs in 2025.

DBS Hong Kong, Hang Seng Bank, and Bank of East Asia (BEA) recorded the three largest NIMs that year. However, DBS Hong Kong’s NIM fell to 2.06% in 2025 from 2.27% in 2024 as its net interest income declined by 1.3%.

Hang Seng Bank and BEA also saw their NIMs fall by 21 basis points and 19 basis points, respectively, to 1.99% and 1.90%.

“Looking ahead, with the sector facing structural pressures from a lower-rate environment, we believe Hong Kong banks’ profitability in 2026 will depend on their proactive asset-liability management strategies to safeguard their net interest margins,” Man and Luk said.