Retail banks recorded strong growth last year with aggregate pre-tax operating profits in respect of their Hong Kong offices up 31.1%, the Monetary Authority says.

In its quarterly bulletin released today the authority said the growth was supported by increases in net interest income and non-interest income.

Net interest income grew 17.4% last year reflecting an expansion of assets and an improvement in the interest margin. Non-interest income rose 48% mainly due to a robust increase in fees and commission income brought by a very active stock market. Non-interest income rose to 44% last year from 38.4% in 2006.

Retail banks' net charge for debt provisions more than tripled last year. The banks' net charge for other provisions also grew to $1.3 billion from a nearly zero-base in 2006, due to the deterioration in the quality of investment portfolios related to bank exposure to sub-prime related products.

Negative equity falls

Helped by the rise in property value, banks' residential mortgage loans in negative equity fell to 1,900 cases at the end of last year, with an estimated aggregate value of $3 billion.

The delinquency ration of these loans rose to 1.75% from 1.57% at the end of September due to portfolio contraction.

The mortgage delinquency ratio fell to 0.11% last year, while the rescheduled loan ratio fell to 0.2%. The combined ratio fell to a new low of 0.31% from 0.35% at the end of September.

Banks' domestic lending fell 8.2% in the fourth quarter after rising 5.2% in the third. The fall was due to a retraction in share financing.

Despite an increase of 7.7% in offshore loans, retail bank total loans fell 7.2% in the fourth quarter.