Hong Kong Banking Outlook 2019.pdf

Hong Kong Banking Outlook 2019kpmg.com/cnContentsOverview: New challenges call for a renewed focus on conduct and the customer, enabled by technologyBanking in the post-financial crisis era: Ten years on from the GFC – could a bank fail today?Wealth management: Laying the foundations for continued strong private wealth management growthCustomer experience: Improving customer experienceConduct and culture: Managing conduct risk is no longer a tick-box exerciseOpening up China’s financial services sector: Redefining international banks’ China strategyChina and global trade: Trade volatility is here to stay – how might this impact banks?Virtual banks: Virtual banks set to go live in Hong Kong – will traditional banks adapt to survive?Emerging technology: The next generation of AI and blockchain will transform business modelsEmerging technology risk: More technology adoption could mean more cyber-attacks in 20195 6 7 8 9 10 11 12 13 14 © 2018 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Open APIs: Open API Framework will drive innovation and enhance customer experience in Hong KongBig data: Big data is the foundation for technology enablementSmart city: Banks’ crucial role in Hong Kong’s smart city development Regulatory reporting and data: Data as the backbone of enhanced regulatory reportingCompliance transformation: Technology enabling complianceLIBOR replacement: The end of LIBOR approachesAML: A data-driven, intelligence-led approach to combat financial crime Non-Performing Loans: NPLs in China may increase, but more demand from external capital to purchase themBanking in China – the impact of Individual Income Tax reform: The tax net widens in ChinaContact usAbout KPMG15 16 17 18 19 20 21 22 23 2426© 2018 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.© 2018 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.New challenges call for a renewed focus on conduct and the customer, enabled by technologyWelcome to our outlook for 2019, where we forecast the key developments and trends that will impact and shape Hong Kong’s banking industry over the next 12 months.The banking industry has gone through some fundamental changes in the ten years since the GFC, largely driven by regulation to strengthen banks’ balance sheets and the overall resilience of the sector. However, the pace of change in the next few years will be as significant – if not more so – than that seen over the past decade.Regulation will continue to be a key driver, although we expect to see less prudential regulation and a greater focus on culture and conduct, and how banks treat their customers. We predict the regulators in Hong Kong will fine and pursue enforcement action against banks that do not adequately address the overall culture of their organisations. Culture represents a key opportunity for banks to set themselves apart from their competitors in the year ahead.The successful banks in the coming years will be the ones that truly put their customers front and centre of their business strategy, and harness the power of data to achieve this. This is accentuated by the emergence of virtual banks in Hong Kong, which will disrupt traditional business models and how customer experience is delivered in the city. While the leading banks will seek to become data-driven enterprises, this also increases risks and the impact around data protection and information security. Could 2019 be the year of the first major data breach of a Hong Kong bank?Technology will be a key enabler for banks to realise value from their data and become more customer-centric, as well as to improve how they deal with regulation and compliance issues. The successful use of the right technology – not just any technology – will allow banks to operate in a more profitable manner.Ten years on from the GFC, the market landscape will continue to evolve at a rapid pace. While we acknowledge that Hong Kong’s banking sector is more resilient due to the strengthening of regulations over the past decade, the level of change, disruption and competition in the industry means that there are new challenges that could cause a bank to fail in the future. In this outlook, we share our views on some of these issues, as well as on a number of opportunities for banks to grow and succeed.I hope you enjoy our 2019 predictions for the sector, and would welcome the opportunity to discuss the current and future market landscape. In the meantime, we at KPMG wish you all a prosperous 2019.OverviewPaul McSheaffreyPartner, Head of Banking & Capit...