Report

Hong Kong's banking sector delivered robust performance in Q1 2025, with the Hong Kong Monetary Authority (HKMA) reinforcing the city's financial stability through timely foreign exchange interventions and a strategic push into sustainable finance. For global financial institutions and multinational corporates, these developments offer clear signals of market resilience, regulatory sophistication, and emerging investment opportunities.

Banking Sector: Profits Up, Risk Controlled

Retail banks' pre-tax operating profits surged 15.8% year-on-year in Q1, driven by an 80.8% jump in FX and derivatives income and 34% growth in fee and commission revenue, according to the HKMA's June Quarterly Bulletin. Net interest margin remained stable at 1.51%.

Asset quality held firm: the overall impaired-loan ratio inched up to 1.98%, but loans to mainland-related borrowers improved, with the ratio falling from 2.37% to 2.27%. Total capital and liquidity coverage ratios stood at 24.2%and 182.5%, respectively—well above Basel III requirements.

HKMA Steps In to Defend Currency Peg

On 26 June, the HKMA intervened by selling US$9.42 billion as the HKD touched the weak-side convertibility limit(HK$7.85/US$). This action follows a period of strong-side interventions earlier this year, which had attracted HK$129.4 billion in inflows. The resulting rate differential widened, prompting outflows via carry trades.

Such interventions underscore the credibility of Hong Kong's Linked Exchange Rate System (LERS), providing currency stability vital to international treasurers, bond issuers, and cross-border investors.

New Capital Channel: HKMA–AIIB Green VC Partnership

The HKMA also signed a partnership with the Asian Infrastructure Investment Bank (AIIB) to co-invest in green and tech infrastructure VC funds in emerging Asia. This move positions Hong Kong as both a regional innovation hub and a sustainability-driven finance gateway.

HKMA Chief Executive Eddie Yue highlighted the partnership as a “demonstration effect” for channeling institutional capital into high-impact sectors. AIIB President Jin Liqun emphasized Hong Kong's strategic role in scaling sustainable investments across the region.

Why It Matters for Global Institutions

FX stability: Timely interventions protect HKD-linked exposures and reduce hedging costs.

Banking resilience: Strong capital buffers and asset quality support long-term credit and counterparty confidence.

Green finance acceleration: New VC channels offer deal access for ESG and impact investors.

Trade finance shifts: A 4.7% Q/Q drop in trade finance signals changing trade dynamics in Asia's key hub.

Bottom Line
Hong Kong remains a critical node for global finance—not only as a stable capital market with credible monetary policy, but increasingly as a launchpad for climate-aligned, innovation-focused investment in Asia. For banks, asset managers, and multinational corporates, it offers a blend of regulatory rigor, policy transparency, and forward-looking capital strategies.