The Hong Kong Monetary Authority (HKMA) has released a comprehensive report evaluating the performance and impact of virtual banks (VBs) in the region. This review, conducted in 2024, comes several years after the inception of the first eight virtual banks in 2020, according to the HKMA.

Key Objectives of the Review

The HKMA’s report aimed to achieve four main objectives:

• Assess the delivery of the three policy objectives for introducing virtual banks to Hong Kong.
• Evaluate market acceptance, business performance, and user response since the launch of VBs.
• Discuss challenges faced by VBs and outline HKMA’s policy initiatives to support their growth.
• Recommend steps for further development of the virtual banking industry.

Findings and Performance Metrics

The review found that virtual banks have successfully achieved the three policy objectives set out at their introduction. Market acceptance has been strong, with 2.2 million depositors using VB services as of the end of 2023. These digital-only banks have received positive feedback for their innovative products and services.

Despite facing initial challenges due to the COVID-19 pandemic, the eight virtual banks have shown moderate business growth over the past three years. While none of the VBs had reached profitability by the end of 2023, their operating performance has improved significantly. Aggregate operating income increased seven-fold, and net losses narrowed by 15% from FY2021 to FY2023.

Future Outlook and Proposed Renaming

HKMA Chief Executive Eddie Yue stated that the current number of virtual banking licenses is optimal, indicating no immediate plans to introduce more players into the market. In a bid to better reflect the modern banking model, the HKMA has also initiated a one-month public consultation to consider renaming “Virtual Bank” to “Digital Bank”.

The consultation paper and the detailed report can be accessed and downloaded from the HKMA website.

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