The way ahead: Monetary Authority Deputy Chief Executive William Ryback presents an outlook for the banking sector in 2007.

Consumers are sure to benefit from borrowing at low interest rates as the interest environment for 2007 remains stable and low, Monetary Authority Deputy Chief Executive William Ryback says.

Hong Kong banks remained sound and profitable in 2006 with deposits growing at 16%, outstripping the 4% increase in loans.

Mr Ryback noted that rising costs are still an issue, but new provisions remained low and net interest margins have recovered somewhat. Consequently, banks' pre-tax operating profits recorded good growth.

Last year, the banking sector's classified loan ratio fell from 1.37% to 1.19%, the mortgage delinquency ratio rose to 0.2% from 0.19%, while the credit card charge-off ratio rose from 2.81% to 3.02%.

The same year saw the net interest margin rise from 1.68% to 1.8%, the cost-to-income ratio rise from 41.9% to 42.7%, and the average consolidated capital adequacy ratio rise from 14.8% to 15%.

Credit card charge-off

On the modest increase in credit card charge-off, Mr Ryback believed the rate will not jump this year as consumer sentiment and economic fundamentals are sound.

Although market competition will remain keen and liquidity is abundant, he did not see the banks loosening lending standards, adding the authority will monitor the situation.

Mr Ryback said the banking sector will make some adjustments to interest premiums by the end of this year or early 2008, to comply with Basel II requirements on capital adequacy.

This year the authority will promote the Deposit Protection Scheme, letting more people know about its operation. As more Taiwanese and overseas banks intend to form operations in Hong Kong, the authority will also streamline the licensing mechanism.