**Hong Kong**: KPMG’s Hong Kong Banking Outlook 2025 highlights a recovery in the banking sector, driven by policy changes and the integration of Generative AI. The report underscores upcoming challenges and opportunities as banks adapt to new technologies and regulatory demands amidst a complex environment.
In Hong Kong, the banking sector is displaying signs of recovery following a challenging period, as projected by KPMG’s latest report, the Hong Kong Banking Outlook 2025. This positive forecast anticipates the continuation of this trend into 2025, with a particular emphasis on the pace of US interest rate cuts, which is expected to be slower than many had initially forecasted.
Paul McSheaffrey, Senior Banking Partner at KPMG China, acknowledged the improvements seen in 2024, attributing them to policy changes in the Chinese Mainland that have fostered cautious optimism heading into the new year. McSheaffrey stated, “2024 marked an improvement for Hong Kong’s banking sector, with signs of recovery emerging after a prolonged period of challenges.” He highlighted positive indicators, including an increase in funds raised on the Hong Kong Stock Exchange and effective policy measures from the Chinese authorities aimed at boosting consumer demand.
Additionally, the report identifies Generative AI and virtual assets as transformative technologies that could significantly alter traditional banking operating models. Jianing Song, Head of Banking and Capital Markets at KPMG China, pointed out that these innovations present substantial opportunities for banks willing to adapt. He remarked, “As we enter 2025, the environment faced by banks is becoming increasingly complex. However, we believe that this year will bring substantial opportunities for banks willing to adapt and innovate.”
The emphasis on resilience remains paramount in the regulatory landscape, particularly as incidents of cyber fraud and financial crime continue to gain media attention. KPMG predicts that meeting regulatory expectations will involve a concerted effort by banks to implement resilience requirements. The adoption of AI technology is seen as a critical component in combating financial crime, with both regulatory bodies and banks preparing to address associated risks.
Moreover, KPMG outlines that cost optimisation will be a strategic imperative for banks amidst geopolitical uncertainty and rising operational expenses. Rather than pursuing broad cost-cutting strategies, banks are encouraged to focus on identifying inefficiencies and implementing targeted solutions to enhance productivity and customer experience. The use of automation in this context can streamline core processes within the banking operations.
Digital transformation is forecasted to gain momentum as well, with over one-third of financial institutions already integrating Generative AI into their operational frameworks. Government initiatives, including the Hong Kong Monetary Authority’s (HKMA) Generative AI Sandbox, are supporting this trend. The interest in virtual assets is also considerable, with projects like the HKEX’s Virtual Asset Index Series contributing to the growth of Hong Kong’s tokenisation market.
KPMG stressed the importance for banks in 2025 to digitise operations robustly. This encompasses expanding their talent pools with digital expertise and establishing a strong data governance framework to support their Generative AI endeavours. Increasing action in this domain is expected through continued policy support throughout the year.
As the banking sector navigates these transformative trends, KPMG’s insights provide a foundational perspective for understanding the evolving landscape, as institutions pursue growth opportunities while adapting to new operational challenges.
Source: Noah Wire Services
