Hong Kong lenders shrug off virtual banking threat

Account fees, which were waived, represent only a negligible income source.

Although banks in Hong Kong waived or reduced minimum account fees in anticipation of the threat from virtual newcomers, incumbent lenders are still in a strong position to retain their dominance against tech upstarts, according to Fitch Ratings.

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"The granting of virtual bank licences would introduce more competition, but it is unlikely to be a significant game-changer for the local incumbents that have been operating in this competitive landscape for many years," Savio Fan, analyst at Fitch Ratings said in a report. 

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HSBC was one of the first to announce that it is waiving or reducing account fees which was quickly followed by similar cuts by Bank of East Asia, Hang Seng Bank and Standard Chartered. A number of banks have also reduced cash rebates on mortgage loans as part of an effort to adjust their business models. However, the move deals anything but a heavy blow on entrenched lenders that have long cracked the city's competitive and mature banking market.

"The fee move, on a standalone basis, is unlikely to have a meaningful revenue impact on the banks as account fees are almost negligible to most Hong Kong banks and mostly serve as a disincentive for customers to keep very low balances," said Fan.

"[T]his will not significantly dim earnings prospects for the established banks as they are well-positioned for the challenge," he said, adding that banks in Hong Kong enjoy a diversified income streams such as credit cards, securities brokerages, loans commissions and insurance. Moreover, banks have also been upgrading their digital and mobile bankign capabilities even before the virtual banking licenses were announced, effectively strenghtening their position.

Hong Kong has so far issued eight virtual bank licenses including firms backed by Ant Financial and Tencent. Other players include Infinium Limited, Insight Fintech HK Limited, Ping An OneConnect Company Limited, Livi VB, an entity co-owned by Bank of China (Hong Kong); SC Digital Solutions, a joint venture between Standard Chartered, HKT, PCCW and Ctriop; and ZhongAn Virtual Finance which is backed by online P&C insurer ZhongAn and fintech unicorn WeLab.