Hong Kong's banking system performed steady in 2005 due to favorable economic environment, said the Hong Kong Monetary Authority on Wednesday, predicting a " fairly good" prospect for 2006.

Banking system of Hong Kong remained in "sound condition" in last year, William Ryback, deputy chief executive of the monetary authority, told reporters on Wednesday.

Over the past year, customer deposits grew by around 3 percent, while domestic loans increased by around 9 percent, said Ryback.

He noted that the banking system recorded healthy growth in pre- tax operating profits, which was reflected through increases in both interest income and non-interest income, strong treasury gains, lower credit costs through reduction in bad debt charges and credit recoveries.

As to the sector's performance of this year, Ryback said the prospect was "fairly good" due to continued "positive" economic environment.

However, challenges remain to Hong Kong's banking system in this year for keen competition and uncertain interest rate environment, said Ryback.

He predicted that the U.S. interests rate would be lifted to a normal range from 4.5 percent to 5 percent, noting that there's no need for local banks to follow the increase for good capital liquidity.

He said interest margins will be under pressure and the positive effects of provision write-backs will disappear, adding banks will experience cost pressure.

A moderate increase in loan demand and steadily improvement of asset quality are also expected.

Source: Xinhua