November 8, 2019 / 5:29 AM / 11 days ago

Breakingviews - Recession gatecrashes Hong Kong’s fintech party

A man walks past an advertisement of Bank of China for young customers, in Hong Kong, China November 30, 2015. REUTERS/Tyrone Siu

HONG KONG (Reuters Breakingviews) - Hong Kong’s economic travails are an unwelcome guest in the city’s fintech party. Enthusiasm for online-only banks was palpable at the Fintech Week conference. Yet months of political unrest have hit small businesses, and the added risks may delay local launches by the likes of Standard Chartered and Tencent.

Attendees this week descended on Hong Kong’s Lantau Island for the financial hub’s fourth annual gathering. With appearances from top officials like Financial Secretary Paul Chan to executives at Singapore’s $14 billion Grab and other rising stars, there was plenty of buzz. Hot topics included central bank digital currencies and cross-border payments.

Virtual banks, as these branchless outfits are known in Hong Kong, took centre stage. Earlier this year, Hong Kong authorities granted eight licenses for such firms to offer payments, deposits and other services, in a long overdue shakeup. HSBC, Bank of China Hong Kong, Hang Seng Bank and Standard Chartered account for some three-quarters of the city’s mortgages and two-thirds of retail loans. Online challengers, including a joint venture between Chinese handset maker Xiaomi and AMTD, as well as insurance giant Ping An, are ready to muscle in. About 30% of total banking revenue, or $15 billion, is up for grabs, analysts at Goldman Sachs reckon.

Yet just 40 kilometres away from sunny Lantau, Hong Kong’s central business districts and elsewhere are reeling from broader malaise. The financial centre’s economy shrank by 3.2% in the third quarter, plunging it into recession for the first time in a decade, as increasingly violent anti-government protests took hold. Lenders now face lower profitability as risks of loan losses and higher credit costs rise, Morgan Stanley analysts warned in a recent note. The protest-battered city’s 340,000 small and medium-sized businesses, prime customers for online-only banks, have been hit the hardest. Virtual banks say they remain fully committed to Hong Kong.

The special administrative region’s embattled chief executive, Carrie Lam, has made fintech an important area of focus and investment for her government. And of course she is partly to blame for the deteriorating climate in the city. Lam’s administration, perhaps Hong Kong’s most unpopular one since reverting to Chinese rule, has repeatedly failed to defuse large-scale anti-government unrest. It’s an unfortunate own goal all around.        

Breakingviews

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