Hong Kong’s banks pressured by real estate stress and lower margins in 2026

Many banks have begun cutting property exposure.

Interest rate cuts and real estate stress will continue to challenge Hong Kong’s banking sector in 2026, weighing on bank earnings and asset quality, according to Fitch Ratings.

On the one hand, residential mortgage demand is expected to rise modestly as the housing market stabilises alongside lower borrowing costs, the ratings agency said in its 2026 outlook report published in November 2025.

But overall loan growth will remain ‘mild’ as banks reduce exposure to riskier sectors such as commercial real estate (CRE).

CRE has become a years-long problem for the sector, prompting local lenders to clean up their portfolios of riskier assets. CMB Wing Lung is reportedly downsizing its mainland China property exposure through loan repayments and write-offs,

Bank of East Asia (BEA), the largest independent-owned bank in Hong Kong, saw the impaired loan ratio for its Hong Kong CRE portfolio also climbed to about 7.5% from estimates of about 6% at end-2024. BEA has significantly downgraded problematic Chinese developers in recent years, S&P said in its report.

Meanwhile, private lenders have reportedly stepped in to fill the gap in real estate lending as banks prioritise risk reduction and portfolio clean-up.

“Anticipated interest-rate cuts will compress [net interest margins] and profitability to a moderate extent, in addition to asset-quality challenges from prolonged stress in Hong Kong's CRE market,” wrote Fitch expert Grace Wu, head of Greater China banks, in the 2026 outlook report.

The narrow interest rate difference between Hong Kong and mainland China is also not expected to boost loan demand significantly due to US tariffs raising uncertainties and reducing capital expenditure (capex) plans, Fitch said.

Fees and cross-border investments thrive
One bright area for Hong Kong’s banks are fees. Robust fee momentum, for example from wealth management fees from cross-border investment flows, can provide some upside earnings.

Wealth management has seen robust activity in the city. Futu, a brokerage and wealth management company based in China, opened its largest store in Hong Kong and rolled out an institutional private wealth center in Causeway Bay.

Hang Seng Bank, one of the locally headquartered banks, and majority owned by HSBC, has been opening several new wealth management centres across the city just in 2025, including one in Kowloon and a planned centre in Tsim Sha Tsui.

Investment between Hong Kong and mainland China has also ramped up, with regulators in Hong Kong and the mainland recently doubling the daily quota of its Northbound trading of swap connect to about $6.3b (RMB45b), as well as expanded the list of swap connect dealers.