Graph of the Week: Higher credit costs to hit Hong Kong in 2012

Blame it on lower global economic activity, weakening domestic property markets, and higher inflation.

According to Fitch analyst Sabine Bauer, profitability has recovered since 2009, but the low-interest-rate environment will pressure interest margins unless the banks keep repricing loans. In addition, the steady pursuit of medium-term funding (to match asset tenors more closely) will improve liquidity profiles but increase funding costs. "Lower global economic activity, particularly trade coupled with weakening domestic property markets and higher inflation, will possibly lead to higher credit costs in 2012," she added.

Graph from Fitch Ratings' 2012 Outlook: Asia-Pacific Banks