ZA Bank has become the first of Hong Kong’s eight virtual banks to achieve monthly profitability, nearly four years after it began operations.

The bank, a joint venture between ZhongAn Online P&C Insurance and Sinolink Group, was among the first to receive a virtual banking license from the Hong Kong Monetary Authority (HKMA) in 2020.

The other virtual banks operating in Hong Kong include Airstar Bank, Ant Bank, Fusion Bank, Livi Bank, Mox Bank, Ping An OneConnect Bank, and WeLab Bank.

The bank’s first monthly profit was driven by a notable increase in deposits, along with higher fee income from newly launched financial products, including mutual funds and US stock trading.

In an interview with the South China Morning Post, Calvin Ng, the alternate CEO of ZA Bank, noted that the profit was mainly due to a substantial 70% year-on-year growth in deposits, which reached HK$16.8 billion (US$2.15 billion) by the end of June.

The bank’s loan portfolio, while still growing, saw only modest gains within the single digits, although specific figures were not disclosed.

The bank’s net interest margin—a measure of the spread between its lending rates and the cost of funds—expanded to 2.21% in the first half of the year, up from 1.87% during the same period last year.

ZA Bank’s revenue also received a boost from the fee income associated with its retail services, particularly from mutual fund sales, insurance products, and the newly launched US stock trading platform.

The bank has further diversified its offerings through strategic partnerships, including collaborations with ZA Insure and Generali Hong Kong.

As of now, ZA Bank provides access to 120 funds from more than 20 global investment firms, including Allianz Global Investors and Franklin Templeton.

Looking forward, ZA Bank aims to strengthen its market position by encouraging customers to switch their payroll accounts to the bank, especially as the Faster Payment System (FPS) begins to support payroll services.

Ng highlighted that payroll services would be a crucial growth area, enabling the bank to expand its customer base and enhance cross-selling opportunities for other financial products.

He also expressed a cautiously optimistic view of the bank’s future profitability, pointing to the potential for sustained growth.

Following a comprehensive sector review, the HKMA recently decided against issuing new virtual banking licenses, concluding that the current eight virtual banks had successfully met policy goals and gained market acceptance, despite the challenges in achieving profitability.

The HKMA is also considering renaming “Virtual Bank” to “Digital Bank” to better reflect the current banking model and bolster public confidence.

Featured image credit: Edited from Freepik